Income Share Agreements: An Alternative to Traditional College Financing

Many students rely on student loans as a way of covering college expenses. According to the most recent data, among all undergraduate students, 36 percent borrow federal loans and 6 percent borrow private loans to finance their education. Students’ loan repayments often exceed their ability to repay, leading to financial distress or default. In response, federal policymakers have introduced income-driven loan repayment options, such Income Based Repayment and Pay-As-You-Earn.

Income share agreements (ISAs) are another income-driven college financing option that has gained recent attention. With an ISA, an investor provides a student with the funds required to pay for college and, in return, the student promises to pay a percentage of their income for a number of years after leaving school. ISAs share many of the advantages of income-driven loan repayment, but ISAs are based on a time period rather than a debt amount. Recipients could end up paying more or less than they originally receive over the course of the agreement.

In spite of the attention ISAs have received, there is still little known about them. These resources offer a better understanding of how, and for whom, ISAs may work. With this knowledge, innovative financial aid practices can be identified and more broadly piloted to increase students’ access to affordable higher education.