Illinois Passes Landmark Bill Regulating Income Share Agreements

In August, Illinois became the first state to pass legislation explicitly regulating income share agreements (ISAs). ISAs can be a transformative, outcomes-based approach to paying for higher education and training. Unlike traditional loans, ISAs tie their repayments to earnings: borrowers only pay if they secure a job with an income above the repayment threshold. This structure can expand access to students who lack good credit history or co-signers, improve affordability for low-earning borrowers, and align school or service provider incentives with student success.

Jobs for the Future (JFF) congratulates Governor JB Pritzker, Senator Elgie Sims, and Representative Maurice West for their leadership in advancing this landmark legislation, which passed unanimously in both the state House of Representatives and Senate.

JFF and partner organizations Better Future Forward (BFF) and Progressive Policy Institute support these efforts to bring clarity and stronger consumer protection to the ISA market. At JFF, our Financing the Future team works to cultivate an education financing ecosystem that promotes opportunity by spurring conversation and action to understand and advance an array of innovative financing options, including ISAs. This legislation creates a strong and clear regulatory framework for ISAs, ensuring that Illinois students are protected from bad actors and enabling innovative, student-focused ISA programs to thrive.

Why this matters

For all their potential, ISAs have been held back from widespread adoption because they don’t fit neatly into the existing regulatory framework, which was designed for traditional fixed-payment loans rather than financing tools with flexible repayment obligations. This mismatch creates confusion for providers and leaves students vulnerable to predatory practices. While Colorado and California attempted to adapt their rules through administrative processes in 2021 and 2022, rulemaking alone cannot modernize outdated statutes or introduce new protections.

What the Illinois bill does

This legislation takes a dual approach. First, the bill adapts existing loan protections to reflect differences in how ISAs behave relative to conventional, fixed-payment loans. An example was a provision in Illinois’ Consumer Installment Loan Act (CILA) that required loans to be “repayable in substantially equal and consecutive weekly, biweekly, semimonthly, or monthly installments.” While this is an important protection against loans with unaffordable balloon payments, it makes no sense to apply it to an ISA where the monthly payments must vary with income to maintain affordability.

Second, the bill creates critical new guardrails to protect students from abusive practices. These include:

• Affordability cap: Monthly payments cannot exceed 8% of a borrower’s income. This ensures that students do not assume overly burdensome financial obligations when ISAs are combined with existing loan obligations.
• Payment and term limits: Contracts may require no more than 180 payments and cannot last longer than 240 months. 
• Minimum income threshold: No payments are required until a borrower earns at least $47,000.
• APR cap: The effective annual percentage rate (APR) is capped at either 9% or 6% plus the 10-year Treasury rate at time of origination, whichever is greater. 
• Ban on acceleration: Borrowers retain income-based protections for the full term of the contract.

Together, these provisions protect students from excessive financial burden while giving providers a clear path to compliance.

The path forward

This exciting step forward didn’t happen overnight: The Illinois Department of Financial & Professional Regulation (IDFPR) recognized the need for clear and comprehensive statutory regulation of ISAs. In 2020, the agency worked with Illinois legislators to introduce a bill creating a consumer protection framework for ISAs. Although that proposal didn’t advance amid the challenges of the pandemic, legislators and stakeholders—including BFF and JFF—continued refining the bill in consultation with legislators, IDFPR, the Attorney General’s office, and other stakeholders. The latest iteration, SB 1537, passed both chambers in May and was signed by the governor in August. 

With this bill’s passage, Illinois has shown that legislation—not just rulemaking—is essential to both safeguard students from bad actors and allow good actors to unlock the full potential of ISAs. JFF urges other states to build on this model, adapting it to their individual state contexts. At the federal level, Congress should act to establish a national framework for ISAs and other forms of outcomes-based financing. Clear and strong rules will protect students, ensure responsible innovation, and allow high-quality programs to scale.