An Act establishing an equity financing for education program and supplementing chapter 3B of Title 18A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. This act shall be known and may be cited as the "Education Investment Act."

2. a. The Commission on Higher Education shall select one or more public institutions of higher education to participate in an equity financing for education program. The purpose of the program shall be to provide a student enrolled in an undergraduate or graduate course of study at a participating institution of higher education with an income-contingent option for financing his education. Under the program, a student may defer payment of all or a portion of undergraduate or graduate tuition costs and other expenses covered by the program until the completion of his education. At some time following the completion of his education, the student shall pay a fixed percentage of his income to the participating institution over a fixed number of years. The full payment by the student may be more, less, or the same as the deferred expenses he incurred during his education.

b. A participating institution shall permit any student enrolled in an undergraduate or graduate course of study to apply for a deferment and repayment contract through the equity financing for education program. The participating institution may limit enrollment in the program, consistent with prudent management of the program's costs.

c. The participating institution shall establish the terms and conditions of the deferment and repayment contract. The contents of the contract may be established with any third party investors and shall include, but not be limited to, the following:

(1) the percentage of a participating student's future income that shall be collected as repayment for his undergraduate or graduate expenses covered by the program;

(2) the length of the repayment period;

(3) the terms and conditions under which the student's payments may be temporarily deferred, permanently cancelled, or repaid in a lump sum;

(4) a description of the reporting and repayment procedure; and

(5) provisions for late payment charges and for default.

d. A participating institution shall bear the costs of the equity financing for education program during the deferment period. The institution may enter into an agreement or contract with one or more third party investors to cover such costs in exchange for a share of future repayments received through the program.

3. This act shall take effect immediately.

STATEMENT

This bill is entitled the "Education Investment Act." The bill establishes an equity financing for education program at one or more public institutions of higher education, to be selected by the Commission on Higher Education. The purpose of the program is to provide undergraduate and graduate students at participating institutions of higher education with an income-contingent option for financing their education. Under the program, a student may defer payment of all or a portion of undergraduate or graduate tuition costs and other expenses covered by the program until the completion of his education. At some time following the completion of his education, the participating student must pay a fixed percentage of his income to the participating institution over a fixed number of years.

Under the bill, a participating institution must permit any student enrolled in an undergraduate or graduate course of study to apply for a deferment and repayment contract through the equity financing for education program. The participating institution may limit enrollment in the program, consistent with prudent management of the program's costs.

The terms and conditions of the deferment and repayment contract will be set by the participating institution, but may be established in consultation with third party investors, and must specify, at a minimum, the following:

(1) the percentage of a participating student's future income that will be collected as repayment for his undergraduate or graduate expenses covered by the program;

(2) the length of the repayment period;

(3) the terms and conditions under which a contract may be temporarily deferred, permanently cancelled, or repaid in a lump sum;

(4) a description of the reporting and repayment procedure; and

(5) provisions for late payment charges and for default.

The bill provides that the participating institution will bear the costs of the equity financing for education program during the deferment period. However, the institution may enter into an agreement or contract with one or more third party investors to cover such costs in exchange for a share of future repayments received through the program.

The current system for financing higher education, which results in large amounts of debt paid back at a fixed interest rate, presents a significant burden to recent graduates. It is the sponsor's belief that because students face fixed debt payments after graduation, they are discouraged from pursuing low-paying work in public service. An alternative method of student loan financing based on equity, however, would relieve the burden of debt and encourage students to pursue careers that match their interests and skills without regard to potential income. At the same time, such a system would also present a powerful incentive to the institution of higher education to provide effective career services both during and after a student's course of study.