Outcomes-Based Financing (OBF) for Students Act

Key Points

• The bill creates a national legal framework for outcomes-based financing, where students pay a share of future income instead of fixed loan payments. It defines these products and sets rules that must be met to qualify, including that payments depend on income exceeding a set threshold and end after a maximum duration.
• Students would not owe any payment when their income falls below the income threshold, which must be at least 250 percent of the federal poverty line for a single person. Total OBF payments cannot exceed 20 percent of the recipient's income at any point during the agreement.
• Unlike most traditional student loans, these agreements would be dischargeable in bankruptcy on the same terms as ordinary debt. If the recipient dies or becomes permanently disabled, all remaining obligations are canceled.
• Providers must give clear disclosures, including a comparison table showing total payments, number of payments, finance charge, and annual percentage rate at income levels from $40,000 to $200,000, plus scenarios with no income and income at the threshold.
• The bill limits how long these agreements can last: no more than 240 monthly payments and a maximum duration of 360 months. It also gives tax breaks by treating payments like deductible student loan interest and excluding discharged amounts from taxable income.
• The bill preempts many state consumer lending laws for these products, including usury limits, ability-to-repay rules, and wage assignment restrictions, unless a state enacts a law that specifically references this federal section.