International Evidence on Income Share Agreements: Perceptions and Characteristics of ISAs Recipients

Abstract

Income Share Agreements (ISAs) have been proposed as an efficient financing scheme for higher education that could also enhance postsecondary outcomes. Yet, there is not enough knowledge about ISAs in education. This paper combines administrative and survey data on students who were offered an ISA by a Latin American provider and offers several novel findings on (1) the factors that explain student ISA take-up and (2) students’ perceptions of ISAs. First, students’ perceptions of ISAs, age, relationship status, and family income are important determinants of the take-up decision. Second, students who took ISAs expect higher future income, but have a worse academic performance than non-takers, suggesting that adverse selection might be a challenge for the large-scale implementation of ISAs. Third, while ISA takers and non-takers do not significantly differ in terms of their attitude towards risk, students are less likely to take an ISA if they perceive it to be riskier than a loan. Lastly, students perceive that ISAs increased their persistence and allowed them to stay enrolled at their preferred institution and major. These findings are relevant for the design and policy evaluation of ISAs both in the US, where legislation has been introduced and ISA programs are proliferating, and in other countries considering reforms in higher education financing.

Keywords: Income Share Agreements, Higher Education, Student Loans, Human Capital Contracts, Latin America