An assignment of wages would be a document given to the employer directing them to pay the creditor directly. The employer isn’t going to pay the investor directly, the employer is going to pay the student/employee, and then the employee has to pay the bill.
The reason that’s on the top of the document is that the investor CAN’T file the document with the employer and be paid directly.
Thank you for that clarification, but I think the average 18-22 year old isn’t going to understand the difference between that legal term and the common understanding. That was more my point, that it confuses the issue at the very beginning.
The contract is not written for the terms to be easily understood by the students, it is a predatory contract.
Every loan (or loan-ish) contract is going to be written to favor the lender. There are laws that protect the borrower (truth in lending, fair debt collections act, etc) but the loan has to fit under those laws. Since this is NOT a loan, those laws aren’t going to protect the student. Student loans do not give good TIL disclosures either as the total amount is not known when the master contract is signed.
It appears Illinois does protect its residents from this type of agreement (or at least doesn’t let those agreements be enforced in Illinois). Other states can make those same laws and if enough did, then ISAs would be gone. There could be clauses placed into the ISA that the interest collected is no more than X% of the original investment. The SCHOOL could require those clauses before it allowed investors to approach its students. The more restrictions it puts on the agreements, the less likely it will find investors. For the investors, it IS a big risk that they won’t be repaid and recover their investment. Look at the default rate on student loans. There is a reason the fed govt only allows ~$27k in direct loans (and if there are more loans taken they are at a higher rate because there is more risk).
I don’t think these ISAs are criminal or usurious. It is a high risk arrangement so the repayment is expensive. It’s probably not a good deal for most engineers who are going to graduate and get a high paying job. But what about a Purdue grad who wants to be a teacher and may only make $40k/yr for 10 years? It may come out cheaper than having gotten a $50k loan on the private market, paying the origination fee, interest from day one and compounding for the 4 years of college? That teacher may only repay $70k in principle and interest over the 10 years (14 from the original loan).
I do think Purdue should have a comparison. “This is how much it would cost you to borrow $40k the traditional way (private loan, parent plus loan) and this is how much it will cost you to borrow through an iSA and repay over 10 years if your salary is $50k, $60k, or $75k.” i bet the repayment amount at the $40k salary is not that much different than the traditional loan route.
A friend who was the manager at a savings and loan (remember how well those did?) was criticizing me for working for a high risk lender and making loans at 36%. I asked her what the rate was for a $3000 unsecured loan at her S&L. “Oh, we wouldn’t make that type of loan, too risky.” They would, however, issue a credit card at 18-24% interest and allow the account to have a $1000 balance for years, with the customer never paying off the charges (the loan). That costs more than 36%.