Solving Student Debt or Compounding the Crisis? Income Share Agreements and Fair Lending Risks

Abstract

Income Share Agreements (ISAs) have been touted as a solution to the recent staggering increases in student debt. That debt crisis is a civil rights crisis. On average, Black Americans have more student debt, which they face against a backdrop of stark disparities in wealth, income, and related metrics. Although the U.S. is desperately in need of solutions for the student debt crisis — and the accompanying racial and ethnic disparities — features of existing ISAs threaten to exacerbate, not mitigate, inequalities.

ISAs are essentially educational loans that students agree to pay back using a percentage of their future income. ISAs come in a variety of forms — including differences in terms and conditions, the parties offering them, and the quality and types of educational programs funded. In the abstract, these arrangements could be an interesting alternative to the existing student loan regime. However, while existing programs are not equal in terms of benefits and risks, there is evidence that some variations of ISAs are being used to further new iterations of a classic American tragedy: targeting minority communities for exploitative and predatory products. And even in the more benign forms of ISAs, some features used to set terms and conditions — such as school- or major-based distinctions — risk unnecessarily perpetuating disparities adverse to historically underserved groups.

This article assesses ISAs under core anti-discrimination frameworks such as traditional disparate treatment and impact, as well as reverse redlining. Although this article focuses on the Equal Credit Opportunity Act (ECOA) — the primary federal statute prohibiting discrimination in credit transactions — it also highlights other anti-discrimination statutes that may apply to ISAs, including state and local fair lending and public accommodations laws.

Keywords: Isa, Income Share Agreement, Fair Lending, Ecoa, Consumer Law, Student Loan, Disparate Impact, Discrimination