Illinois’ Democratic legislature recently passed, and its progressive Democratic Governor, J.B. Pritzker, recently signed into law, the Student Investment Account Act, which establishes a Student Investment Account to be maintained by the state’s Treasurer. Pursuant to the Act, the Treasurer can allocate up to 5% of the state’s Investment Portfolio to that Account, an amount that would appear to be approximately $1.5 billion based on the state’s 2018 annual report. The Account can then be used by the Treasurer for various activities, including to “originate, guarantee, acquire, and service education loans [and] facilitate such arrangements between borrowers and eligible lenders” and separately to “enter into income share agreements with participants [and] facilitate such arrangements between participants and eligible income share agreement providers.”
Various key terms are defined as follows:
- “Borrower” means “an Illinois resident student who has received an education loan or an Illinois resident parent who has received or agreed to pay an education loan, subject to approval by the State Treasurer.”
- “Education loan” means “a loan made to a borrower in accordance with this Act to finance an Illinois resident student’s attendance at an institution of higher education.”
- “Income share agreement” means “an agreement between a participant and an eligible institution of higher education or an income share agreement provider approved by the State Treasurer in which the participant agrees to pay a percentage of the participant’s future earnings for a fixed period in exchange for funds to pay for their post-secondary education.”
- “Income share provider” means “an organization that allows income share agreement participants to fund their education by means of an income share agreement.”
- “Institution of higher education” means “a post-secondary educational institution located in Illinois and approved by the State Treasurer.”
- “Participant” means “a resident student who enters into an income share agreement for the purpose of funding the participant’s attendance at an institution of higher learning.”
The law authorizes the State Treasurer “to establish specific criteria governing the eligibility of entities to participate in its programs, the making of income share agreement or education loans, provisions for default, the establishment of default reserve funds, the purchase of default insurance, the provision of prudent debt service reserves, and the furnishing by participating entities of such additional guarantees of the income share agreements or education loans as the State Treasurer shall determine.” The State Treasurer is directed to establish fees “to cover the costs of administration, recordkeeping, marketing, and investment management related to the Student Investment Account” and is authorized to pay eligible lenders, income share agreement providers, financial institutions and other entities “ an administrative fee in connection with services provided pursuant to the Student Investment Account in such amounts, at such times, and in such manner as may be prescribed by the State Treasurer.” In addition, the State Treasurer can charge premiums for insurance on income share agreements or education loans and other related charges and can pay such premiums and other charges as are prudent.
To recover an education loan debt or income share agreement owned or serviced by the State Treasurer, the law allows the Treasurer to make deductions from “salary, wages, commissions, and bonuses” of an employee in Illinois and, to the extent allowed by federal or the law of a state in which the employee resides, an employee outside of Illinois, by serving a notice of administrative wage garnishment on the employer. Levy is not permitted until the Treasurer “has caused a demand to be made on the employee…such that the employee is provided an opportunity to contest the existence or amount of the income share agreement or education loan obligation.”
The law also creates a Student Investment Account Administration Fund to be used by the State Treasurer to pay expenses related to the operation and administration of the Student Investment Account and allows the creation of a Student Investment Account Assistance Fund that the State Treasurer can use to provide assistance to qualifying borrowers or income share agreement participants.