Market for Income Share Agreements

The Market for Income Share Agreements: An Innovative Way to Finance Education

The cost of education continues to rise, leaving students with a substantial debt burden upon graduation. According to a recent report by Forbes, student loan debt in the United States has reached an all-time high of $1.5 trillion. As such, students are looking for alternative ways to finance their education, and one such innovative solution is Income Share Agreements (ISAs).

An ISA is a contractual agreement in which a student receives funding for their education from an investor, in exchange for a percentage of their future income after graduation for a specified period. The investor provides the student with the necessary financial assistance, and the student agrees to pay back the investment through a portion of their future income. Unlike traditional student loans, ISAs do not accumulate interest, and repayment is only tied to the student`s performance after graduation.

The market for ISAs is growing, with several universities and private companies offering them to students. In 2016, Purdue University launched a program called "Back a Boiler," which allows students to finance their education through ISAs. Other universities, such as Lackawanna College, Clarkson University, and Vemo Education, have also started offering ISAs as an alternative financing option for students.

ISAs are also gaining traction in the private sector. Companies such as Pave, Lumni, and Upstart are offering ISAs to fund career training programs and coding boot camps. The private sector is also exploring the use of ISAs to finance other expenses, such as medical procedures and housing.

One of the main advantages of ISAs is that they align the interests of investors with those of the students. Since repayment is tied to the student`s future earnings, investors have a vested interest in supporting students in obtaining degrees that lead to higher-paying jobs. Additionally, since ISAs do not accumulate interest, students are not burdened with compounding debt.

However, there are also some concerns regarding ISAs. One criticism is that they may not be suitable for students pursuing lower-paying careers, such as social work or education, as they may struggle to repay the investment. Additionally, there is a risk that ISAs could be structured unfairly, with students from lower-income backgrounds paying a higher percentage of their future earnings than their wealthier counterparts.

Despite these concerns, the market for ISAs is expected to grow in the coming years, offering students a viable alternative to traditional student loans. With innovative financing options such as ISAs, students can pursue their educational goals without the fear of crippling debt and without sacrificing their financial futures. As the market grows, it will be important to ensure that ISAs are structured in a fair and equitable manner to ensure that all students, regardless of their background or chosen career path, have equal access to education financing.