Bill Seeks to Expand Use of ‘Income Share’ Alternatives to Student Loans

April 10, 2014

In an effort to expand access to alternatives to traditional student loans, U.S. Sen. Marco A. Rubio and Rep. Tom E. Petri introduced legislation on Wednesday that would create a legal framework for "income share" agreements.

Under such arrangements, individuals and companies invest in students’ higher education, and in return the students agree to make payments linked to their income for a set period of time after graduation.

The new legislation, called the Investing in Student Success Act, would make it easier for people or organizations to give a student money for college by "clarifying the lawfulness of income-share agreements," Mr. Rubio, a Republican of Florida, said in a news release.

The current student-loan system is "complex and confusing," Mr. Rubio said, while the new private-financing alternatives could "make higher education more affordable and more accessible" for students.

Several companies are already offering such student-loan alternatives. For example, Pave is an online crowdfunding platform that allows students and young professionals to market themselves to potential investors in hopes of gaining financial support. In return, the students agree to share a percentage of their income over a fixed amount of time.

Such student-loan alternatives "would help all students get the financing they need—including students from disadvantaged backgrounds—but without the anxiety that comes with traditional loans," Mr. Petri, a Republican of Wisconsin, said in the news release.

In February, Mr. Rubio announced his support for such alternative financing arrangements in a speech at Miami Dade College, where he also proposed expanding income-based repayment for federal student loans.