- The American Enterprise Institute, a DC-based conservative think tank, examines the promise and challenges of income-share agreements in a new report that outlines agreements backed by philanthropists, private investors, and university endowments.
- According to the report, philanthropic ISAs create a revolving door of funds for successive cohorts of students, much like those run with money from university endowments, and private investors expect the payments from students — set portions of their future earnings — to create profits.
- While some see ISAs as promising alternatives to traditional lending that offer less risk for students, they are still relative unknowns that make it hard to attract investors and therefore hard to build up a track record of success, and with income-based repayment plans from the federal government, ISAs are not nearly as novel as they once were.
Purdue University’s plan to offer income share agreements to students could start lending as early as this fall, according to the report. Marco Rubio’s campaign has focused on the promise of such lending throughout the Republican primary. He calls them “student investment plans” and has also advocated universal income-based loan repayment. The Obama administration’s overhaul of student lending included an expansion of income-based repayment but not all students are eligible.
The nation’s student debt load is now $1.3 trillion, creating a sense of panic among some economists, who expect the monthly payments to drag down the economy, preventing former students from buying homes, making investments, and saving for retirement. Income-share agreements wouldn’t force students to start repaying their loans until they reach an income threshold, and if they don’t graduate with a degree, they generally don’t pay anything at all.