Student Lending: Illinois Enacts ‘Know Before You Owe’ Law

Financial Services Law

Illinois House Bill 2746, also known as the “Know Before You Owe Private Education Loan Act,” was signed into law by Illinois Governor J.B. Pritzker on August 26, 2021, after unanimous passage in both chambers of the Illinois Assembly. The act “aims to provide potential student borrowers with critical information, allowing them to make informed decisions about how to responsibly finance their education,” by ensuring that student borrowers are informed of their federal loan eligibility before taking out private loans. The act also imposes new certification and reporting requirements on private student lenders and educational institutions.

What Happened

Illinois Governor J.B. Pritzker recently signed the bipartisan “Know Before You Owe Private Education Loan Act.” Under the act, private student lenders must obtain certification from educational institutions of certain information prior to disbursing private student loans or income share agreements, including the borrower’s enrollment status, the cost of attendance at the institution, and the difference between the cost of attendance and the borrower’s estimated financial aid.

Educational institutions must provide the requested certification within 15 days of receipt or must inform the lender that the institution will need additional time to comply or is refusing to certify the loan. Prior to providing the certification, educational institutions must determine whether the student borrower has exhausted available federal financial aid and, if not, inform the borrower accordingly and provide information and disclosures regarding the borrower’s financial aid eligibility. Such disclosures include the amount of federal financial aid for which the borrower is eligible; “the advantages of federal loans . . . including disclosure of income driven repayment options, fixed interest rates, deferments, flexible repayment options, loan forgiveness programs, additional protections, and the higher student loan limits for dependent borrowers whose parents are not eligible for a Federal Direct PLUS Loan”; the impact of a private loan on the borrower’s eligibility for federal financial aid; and the borrower’s right to select a private student loan lender of the borrower’s choice and to reject or cancel the private student loan.

If a lender disburses the loan prior to receiving the required certification, the lender must first notify the school in writing of the amount of credit extended to the student borrower and report the disbursement to the student loan ombudsman.

The act further requires private student lenders to provide detailed loan statements to borrowers at least every three months while the borrower is in school, presumably so that borrowers can see how their private student loan obligations are increasing while they are still enrolled in school. The act notably includes separate disclosure requirements for income share agreements (ISAs), which are defined as loans under the act. The ISA-specific disclosures require disclosure of an annual percentage rate that would apply to the ISA based on specified post-graduation earnings scenarios. Under the act, ISA providers are required to list the APR for each ISA assuming the borrower is earning the annual equivalent of the minimum income above which payments are required, and for each $10,000 income increment above such amount until the annual income at which the borrower would pay the maximum amount payable under the ISA (often referred to as the minimum income threshold) in the maximum number of monthly payments that can be required (often referred to as the payment term).

The act also imposes new reporting requirements on both private student lenders and educational institutions. Private student lenders must submit to the Department of Financial and Professional Regulation and the student loan ombudsman an annual report that includes information regarding the schools at which the lender disbursed funds, the volume of loans made annually at each school, the historical lifetime default rate for borrowers obtaining covered loans, and copies of exemplar documents provided to borrowers.

Educational institutions must certify annually to the Board of Higher Education and the Illinois Community College Board, where applicable, that they have complied with the certification requirements set forth in the act.

The act went into effect immediately upon signature by the Governor.

Why It Matters

The act requires education providers to certify specified information that is typically not included in current private education loan certification processes. It broadly defines “private educational lender” to include ISA providers1 and student financing companies and applies to any educational institution—including any online educational program—that provides postsecondary education to a person located in Illinois. Accordingly, private student lenders and educational institutions located outside of Illinois may be subject to the act’s requirements if the student borrower resides in Illinois.

Significantly, the act acknowledges the growing popularity of ISAs by regulating them alongside traditional private student loans. Of concern, however, is that the specific quarterly in-school borrower disclosure requirements require ISA providers to disclose multiple APRs for each ISA based on a computed range of multiple post-graduation incomes, regardless of whether such income amounts are remotely likely to occur. Depending on the minimum income thresholds in an ISA program, the range of APRs required to be disclosed could all be based on income that is higher than what many of those students could reasonably expect to earn, which could lead debt-averse students to underinvest in their educations. At the same time, the required APR disclosure methodology could understate the likely income and the likely APR that the student might have to pay. Finally, it is important to note that the APR disclosures do not represent the highest or lowest possible APR that borrowers can be required to pay under an ISA and that the APR disclosed for certain income scenarios may be a negative number, which may further confuse students.

It is hoped that regulations and model disclosures will be adopted quickly to enable ISA providers to avoid potential consumer confusion.

Manatt has a leading practice advising student loan providers, education providers and income share agreement providers, and is currently advising clients on these issues. For more information, contact the authors or any member of Manatt’s financial services team.

1 See, generally, Ritter, Dubravka and Webber, Douglas A., Modern Income-Share Agreements in Postsecondary Education: Features, Theory, Applications (2019-12-06). FRB of Philadelphia Payment Cards Center Discussion Paper No. 19-6, available at SSRN: and at



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