Outcomes-Based Financing (OBF) for Students Act

Key Points

• The bill creates a national rulebook for outcomes-based financing, a new way to pay for school and job training. Instead of a fixed loan, students agree to pay a share of their future income for a set period, and payments only happen when income is high enough.
• Students only owe payments when they earn above an income threshold, which must be at least 250% of the federal poverty line (roughly $37,000 for a single person). Below that, the payment is $0, and total payments cannot exceed 20% of income.
• These agreements are made easier to discharge in bankruptcy than regular student loans. If the student dies or becomes totally and permanently disabled, all remaining obligations are canceled.
• For taxes, payments are treated like student loan interest, which may qualify for a deduction, and any amount forgiven after the term ends is not counted as taxable income.
• Time limits are set: no more than 240 monthly payments (20 years) can be required, and the agreement must end after 360 months (30 years) unless the recipient asks for an extension.
• The bill overrides many state consumer lending laws for these products, including usury caps and wage-assignment limits, while letting states set their own limits only if they pass laws that specifically reference this new federal framework.