Income share agreements: postsecondary training: gross income exclusion.
The bill creates exemptions from the usury provisions of the California Constitution for income share agreements. This means that the agreements can allow repayment amounts that vary based on the individual's future income, rather than being fixed, which could alleviate financial pressure on graduates who are struggling to start their careers. Additionally, the bill proposes to exclude payments made under such agreements from gross income under the Personal Income Tax Law, potentially making these agreements more attractive to future students.
AB1972, introduced by Assembly Member Choi, seeks to establish a legal framework for income share agreements (ISAs) specifically designed for funding postsecondary training programs. Under this bill, individuals can enter an agreement where payment for their education is contingent upon a specified percentage of their future income. The bill aims to empower individuals by providing them with alternatives to traditional loans, promoting their employability and earning potential through education without the burden of upfront costs.
One notable aspect of AB1972 is the concern regarding the implications of financial obligations tied to future income, which some critics argue might lead to unforeseen financial burdens. The bill states that obligations under an ISA are not dischargeable under federal bankruptcy law, which raises questions about safeguard measures for receivers who may not earn enough to meet their repayment obligations. Furthermore, the bill mandates transparency from ISA funders regarding the terms of these agreements, including the potential need for nominal payments during low-income periods, which could be contested regarding fairness and accessibility in education funding.