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Republican Rubio offers bill on new education financing vehicles
1. Republican Rubio offers bill on new education financing
vehicles
By Caren Bohan and Julia Edwards
WASHINGTON Wed Apr 9, 2014 5:38pm EDT
1 of 2. U.S. Senator Marco Rubio (R-FL) is interviewed at the Reuters Health Summit 2014 in
Washington April 1, 2014.
Credit: Reuters/Gary Cameron
WASHINGTON (Reuters) - U.S. Republican Senator Marco Rubio, a possible 2016 White House
contender, unveiled 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.
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 senator added that the legislation would also establish new legal protections for both
investors and students.
But some critics of the "income share agreements" see risks for students in them.
David Bergeron, an expert on education at the Center for American Progress, a liberal think tank,
said he welcomed Rubio's effort to bring new ideas to the table on higher education financing but
said he was concerned investors would "rig the game" in way that would be unfair to students.
Because students pay a portion of income for a defined period of time, they could end up paying the
investors "substantially more" than the original amount of financing they received, Bergeron said.
2. Bergeron said the federal student loan program offered greater built-in protections for students.
Republican Representative Tom Petri, who has proposed a companion bill on income share
agreements in the House, 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.
"It's a Episode guide for Reading Rainbow huge problem and a growing problem," said Petri, a
Wisconsin congressman who sits on the House Education and Workforce Committee. "College costs
have been growing for years faster than even healthcare. It is reaching crisis proportions."
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."
Rubio told CNBC television on Wednesday that income share agreements were not for everyone and
might in some cases be a better fit for people pursuing advanced degrees.
"My guess is that you will likely see this more often than not in a graduate level, people going into
the STEM fields or medicine or some other profession where there is certainty for the investor that,
that person is going to find a job and make sufficient money to make their payments," Rubio said.
(Reporting by Caren Bohan and Julia Edwards; Editing by Peter Cooney and Jonathan Oatis)
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