Modern Income-Share Agreements in Postsecondary Education: Features, Theory, Applications

Abstract

An income-share agreement (ISA) in postsecondary education is a contract in which students pledge to pay a certain percentage of their future incomes over a set period of time in exchange for funding educational program expenses in the present. Typically, participants begin to make payments once their incomes rise above a minimum threshold set by the terms of the ISA and will never pay more than a set cap (usually, a multiple of the original amount). Funding for ISAs can range from university sources to philanthropic funding and private investor capital. In this study, we describe the many varied and often complex incarnations of ISA contracts, as well as their many use cases in traditional college programs, nondegree/certificate programs, and workforce development settings. First, we discuss the current state of the nascent ISA marketplace, including how ISAs are structured and funded, how educational programs come to consider offering ISAs to students, and what factors they might weigh during the ISA design and implementation stages. Second, we discuss the benefits and disadvantages of each major aspect of an ISA (e.g., funding model, payment terms) to students, institutions, and — if applicable — investors. Finally, we discuss the theoretical underpinnings of ISAs and the main practical challenges that institutions offering ISAs, students choosing these contracts, and regulators face in both the short and the long term as ISAs promulgate.

Keywords: income-share agreement, ISA, student loan, student debt, student loan repayment, higher education, income-driven repayment, IDR, income-based repayment, IBR, income- contingent loans, income-contingent repayment, ICR

JEL Classification: D18, D82, G23, G28, I22, I23, I26