U.S. Sen. Todd Young (R-IN) and U.S. Rep. Erin Houchin (R-IN) last week introduced bipartisan, bicameral legislation that would modernize consumer protection, tax, credit reporting, and higher education laws to establish a federal framework for outcomes-based financing products and ensure they remain affordable, transparent, and focused on student success.
“With the appropriate safeguards, outcomes-based financing can give students an alternative to taking on more traditional student loan debt while gaining the skills they need for successful careers,” Sen. Young said. “Our bipartisan bill strengthens protections for students while helping colleges and career and technical schools prepare them for good-paying jobs without burdening taxpayers.”
Sen. Young on June 24 sponsored the Outcomes-Based Financing (OBF) for Students Act, S. 4943, with lead original cosponsor U.S. Sen. Mark Warner (D-VA). Rep. Houchin on June 25 sponsored the same-named H.R. 9469, with cosponsor U.S. Rep. Ritchie Torres (D-NY).
According to a bill summary provided by the lawmakers, the proposed bill would expand access to innovative financing options for students pursuing postsecondary education and workforce training, and establish strong consumer protections to safeguard participants.
OBF products — including outcomes-based loans and payment agreements — help students pay for postsecondary education, workforce training, and related expenses. Students make payments only after reaching a minimum income threshold, with payments tied to earnings and limited over time.
“Too often, state higher education programs leave students in debt for degrees that have little value in the market. That’s why I’m co-leading the bipartisan Outcomes-Based Financing for Students Act. It ties a portion of state higher education funding to how well schools perform on degree completion, retention, and workforce placement,” said Rep. Houchin. “This means schools will have to show that the programs they offer are worth the price of admission. By doing this, we can help more Americans get the skills they need for jobs that are in demand.”
Specifically, the bill would cap required payments at no more than 20 percent of a student’s income and ensure no payments are owed when income falls below a minimum affordability threshold.
The measure also would provide additional protections for lower-income students by limiting the cost of OBF products for individuals earning at or below 350 percent of the federal poverty level, and would establish limits on both the maximum number of payments and the overall duration of an OBF obligation.
Among numerous other provisions, the bill would prevent providers from accelerating payment obligations under OBF products in cases of delinquency or default, except for limited cases involving outcomes-based loans.
The legislation is supported by Jobs for the Future, Better Future Forward, Western Governors University, Social Finance, the Progressive Policy Institute, Pursuit, The Forward Fund, and the Student Freedom Initiative.