Income Share Agreements: Market Structure, Communication, and Equity Implications of a Student Loan Alternative

Format:

Book

Author/Creator:

Zaber, Melanie A.

Contributor:

Carman, Katherine Grace

Gebremariam, Hana

Spears, Asya

Steiner, Elizabeth D.

Tariq, Zohan Hasan

Language:

English

Other Title:

Income Share Agreements

Place of Publication:

RAND Corporation 2023

Summary:

Postsecondary education is a key pathway to economic mobility for many Americans, but financial challenges often make it difficult for learners to pursue and complete their education. Obtaining financing for postsecondary education can be a barrier to access for some students. The process is complicated, and many programs are ineligible for traditional student loans. One alternative postsecondary financing approach with broad potential use is an income share agreement (ISA). Under an ISA, the learner promises a share (income percentage) of their post-completion income to a funder for a set period (repayment term) in exchange for immediate money for school. ISA payments are only required when the learner's earnings exceed a set amount (i.e., when earnings are above the income threshold). Although ISAs can be beneficial, not much is known about how they function in practice. For example, there are no industrywide requirements for what information ISA-offering institutions provide to learners. There are few regulatory safeguards to prevent the use of potentially misleading language in ISA documentation. The number of postsecondary institutions offering ISAs is unknown, as are the characteristics of these institutions. The authors of this report aim to fill some of these gaps. Using a novel dataset that they compiled to describe the ISA market, the authors examine how ISA structure, implementation, and communication vary; analyze the language used to market ISAs; and assess implications for systemic inequities. This report provides their findings and recommendations for federal and state policymakers, financial aid professionals and learners, and ISA-offering institutions.