On September 9, 2022, the California Department of Financial Protection & Innovation (the “DFPI”) released a Notice of Proposed Rulemaking Action that proposes to adopt regulations implementing the Student Loan Servicing Act (section 28100, et seq.) and the Student Loans: Borrower Rights Law (Civil Code section 1788.100, et seq.). The comment period for the proposed regulations will close on October 28, 2022. Along with the Notice, the DFPI issued an Initial Statement of Reasons and the text of the proposed regulations.
In its release, the DFPI notes that the “proposed rules clarify that education financing products, including but not limited to income share agreements and installment contracts, are student loans and that servicers of such education financing products are covered by the Act and must be licensed. The proposed rules define terms and documents specific to education financing products. The proposed rules also amend some existing rules, based on the DFPI’s years of experience licensing student loan servicers and conducting regulatory examinations.”
Of note, the regulations would define “income share agreement” or “ISA” to mean “an agreement between a student and a school or an income share provider under which the student agrees to pay a fixed percentage of the student’s future income for the payment term, in exchange for waiving or covering the cost of some or all of the student’s tuition.” Further, ISAs would be classified as “education financing products” which include “all private student loans which are not traditional student loans,” and any such products would be subject to the Act.