U.S. Sen. Marco Rubio (R-Fla.) plans to introduce a bill to expand the use of "income share agreements," an alternative to traditional student loans in which private investors or organizations finance students' higher education costs in exchange for a percentage of their future earnings. Companies like Upstart and Pave already offer these financial vehicles, but Rubio's bill would make them more widely available by creating a legal framework for them.
"The same way that private investors invest in a business idea, they could invest in a person who basically says: 'This is who I am. This is what my career goals are. This is what I've done so far. This is what I intend to major and graduate in. And in return, when I graduate, I will pay a percentage of my salary over a defined period of time in return for that investment,'" Rubio said in an interview. "Many players have resisted getting into the marketplace because they're not sure of the legal certainty behind it. The fact that it's now a recognized investment vehicle would allow more players to get into the space and could encourage more to come forward."
New legal protections for investors and students would be established as well. U.S. Rep. Tom Petri (R-Wis.) -- who introduced companion legislation in the House -- says the financial instruments would supplement, not replace, traditional student loans in many cases.