Realigning contingencies around student debt with Income Share Agreements

Photo by Sharon McCutcheon on Unsplash

Todd A. Ward, PhD, BCBA-D

President, bSci21Media, LLC

Yahoo Finance recently reported on a novel solution to the $1.5 Trillion student loan crisis affecting over 44 million Americans.

Tony James, of the private equity firm The Blackstone Group, proposed something called an Income Share Agreement, or ISA.  According to Yahoo Finance, “in exchange for an education, students agree to pay a set percentage of their income after graduation for a certain period.”

According to James, the ISA should be affordable to anyone, and would have an income floor below which low-income earners would be exempt.  He was quoted as saying “Even if you’re just barely over the floor, it doesn’t cost you much, and if you make a lot of money you pay a little bit more for your education, but you can afford it.”

James says that currently there is no alignment in incentives across educational institutions and students such that colleges have no incentive to control costs.  With an ISA, however, “this gives an alignment for colleges not only to keep costs reasonable but also the quality of education high so that people can go get jobs.”

Moreover, he noted “if someone decided they didn’t want to work for a couple of years or decided to go to graduate school it doesn’t accrue interest, you don’t capitalize it, so it doesn’t grow.”

In fact, ISAs are already in practice at a number of smaller colleges, and can be funded by external investors or the university itself, and Purdue University was the first major research university to develop an ISA, just a few years ago.  Their “Back a Boiler ISA Fund” started in 2016, and has currently raised over $10 million from individual and institutional investors, including a hedge fund.  Thus far, the ISA has distributed over $9 million to over 750 students.

According to Purdue, students are not obligated to make payments until six months after graduation and are earning at least $20,000 a year.  Payments have no principal or interest like a traditional student loan, and the payback period is capped at approx. 10 years.

From the student’s perspective, ISAs look attractive, and for investors, risk is reduced by linking payments to salary.  Students with higher salaries pay a little more than students with lower salaries, and the salary link itself increases the likelihood of payback.  However, according to Forbes, more regulations are needed before ISAs really take off and a bill is currently making its way through Congress to address investor concerns.

Questions remain, however, on how ISAs would function to control university costs themselves, as the contingencies are not clearly spelled out.  One could speculate that the ISA may very well overtake traditional student loans and boost university enrollment.  Their reliance on investors rather than tax payers could theoretically  function as a more immediate check on university costs as investors are likely to pull out if they don’t see a profit, and if investors leave so do students.

What do you think?  Will ISAs increase student enrollment and decrease debt?  Will they also function as a check on university costs?  Let us know in the comments below, and be sure to subscribe to bSci21 via email to receive the latest articles directly to your inbox!

Todd A. Ward, PhD, BCBA-D is a science writer, social philosopher, behavioral systems analyst, and the President and Founder of bSci21Media, LLC, which aims to connect behavioral science to the world in an engaging, non-academic way.  Dr. Ward received his PhD in behavior analysis from the University of Nevada, Reno under Dr. Ramona Houmanfar.  He has served as a Guest Associate Editor of the Journal of Organizational Behavior Management, and as an Editorial Board member of Behavior and Social Issues.  His publications follow a theme of behavioral systems analysis, organizational performance, theory & philosophy, and language & cognition.  He has also provided ABA services to children and adults with various developmental disabilities in day centers, in-home, residential, and school settings, and previously served as Faculty Director of Behavior Analysis Online at the University of North Texas.  Dr. Ward can be reached at todd.ward@bsci21.org

 

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