Financing the Future: The Emerging Role of Income Share Agreements in Higher Education

With student debt exceeding $1.5 trillion in 2018, institutions of higher education face increased pressure to improve college affordability. In response, a small but growing number of institutions have implemented income share agreements (ISAs) as an alternative way to help students pay for all, or a portion of, their college tuition. In an ISA arrangement, the student receives tuition funds in exchange for an agreed-upon percentage of their postgraduate income for a pre-specified length of time. Ideally, this model creates a link between postgraduate student performance and college or university tuition reimbursement. Although the concept of ISAs is relatively straightforward, implementation can vary widely based on how the ISA is constructed. Ideally, the college or university assumes some of the financial risk in the arrangement, but other funding sources have been pursued including external investor capital. Utilizing a qualitative methodology and comparative case study approach, the study examined three distinct ISA programs at three different universities, two public and one private, to uncover early lessons learned by institutions that have adopted ISAs, as well as their impetus for launching. The ISAs enabled institutions to provide an alternative finance tool as a method of minimizing the problems of default and underpayment on loans where the principal grows, especially for student populations that are debt-averse. ISAs are a method of demonstrating more institutional accountability for students’ postgraduate success, though it is still too early to know if they will alter institutional behavior and overall performance. Additional interviews were also conducted with higher education finance and policy experts to place ISAs in the broader finance landscape. Though ISAs are still in their infancy, findings from this study reveal that they are an innovative financing tool that show considerable promise and merit further exploration