On August 15, Illinois Governor JB Pritzker approved Public Act 104-0383. This legislation, effective immediately, amends the Student Loan Servicing Rights Act and introduces Article 7, focusing on Educational Income Share Agreements (EISAs).
EISAs are defined as an agreement between a consumer and a provider under which the provider advances a sum of money to the consumer or a third party on the consumer’s behalf for post-secondary higher education needs and the consumer is obligated to make periodic payments based on the consumer’s income. There is an EISA duration under which the obligation is complete regardless of how much has been paid as long as the consumer has paid any prior amounts due. The EISA is not guaranteed under Title IV of the federal Higher Education Act of 1965. Highlights of the Act, include:
Consumer Protection Measures:
- The Act mandates that EISA payments cannot exceed 8% of a consumer’s income, with a cap on the effective annual percentage rate equal to the greater of 8.5% or the high yield of the 10-year U.S. Treasury Notes plus 4.5%.
- The Act prohibits the use of cosigners in EISAs, ensuring that obligations are solely the responsibility of the consumer obligated under the EISA.
- It restricts EISA providers from taking security interests in any collateral.
- It establishes criteria for consumers eligible for referral to repayment specialists, emphasizing support for those facing financial hardship or delinquency.
- It requires that an EISA offer at least three months of voluntary payment relief pauses for every 30 income-determined payments.
- The Act caps on the number of payments under an EISA to 180 monthly payments and the duration to 240 months (excluding payment relief pauses).
- Obligations under an EISA are terminated upon the consumer’s death or if deemed totally and permanently disabled, providing relief in dire circumstances.
Transparency and Disclosure Requirements:
- EISA providers are required to offer clear and concise disclosures to ensure consumers are fully informed before entering into agreements, disclosing detailed information about the agreement, including payment calculation methods, income thresholds, and potential payment obligations at various income levels.
- If a consumer is refinancing an existing loan, an EISA provider must provide a disclosure explaining potential losses of benefits and protections under the existing loan.
Regulatory Oversight and Enforcement:
- The Illinois Attorney General is empowered to enforce violations of the Act under the Consumer Fraud and Deceptive Business Practices Act, ensuring compliance and accountability.
- The Secretary of Financial and Professional Regulation is authorized to adopt rules for the regulation of EISA providers, enhancing oversight and consumer protection.
