Republican Rubio To Offer Bill On New Education Financing Vehicles

[April 09, 2014]  By Caren Bohan and Julia Edwards

WASHINGTON (Reuters) — Republican Senator Marco Rubio, a possible 2016 White House contender, will unveil legislation on Wednesday to broaden the use of financial vehicles known as "income share agreements" that students can use to fund their higher education costs.

Under the agreements, which are marketed as an alternative to traditional student loans, private investors or organizations provide students with financing for their education costs in exchange for a percentage of their future earnings.

"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 told Reuters in an interview on Tuesday.

Some companies including Upstart, developed by former Google employees, and Pave already offer the financial instruments.

But the legislation Rubio is proposing is aimed at making the vehicles more widely available by providing a legal framework for them.

"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," Rubio said.

The Florida lawmaker added the legislation would also establish new legal protections for both investors and students.

Companion legislation on the "income share agreements" is being offered in the House of Representatives by Republican Tom Petri of Wisconsin. Petri said the financial instruments would not replace traditional student loans in many cases but supplement them.

The amount of outstanding student loan debt has eclipsed that of auto loans and credit cards in the United States, according to the Federal Reserve Bank of New York.

Rubio has often talked in speeches about how he graduated from law school with close to $150,000 in debt. He paid off the debt with the proceeds of his 2012 autobiography, "An American Son."

(Reporting by Caren Bohan and Julia Edwards; editing by Peter Cooney)

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