NCPA - National Center for Policy Analysis

Could Income-share Agreements Help Solve the Student Debt Crisis?

August 25, 2015

It is well known that student debt is extremely high: $1.3 trillion and rising. There are nearly 43 million indebted students and former students with an average debt of $27,000.

A potential solution for this problem is to utilize Income-Share Agreements (ISAs) under which a student contracts to pay investors a fixed percentage of his or her earnings for an agreed number of years after graduation.

Terms for this type arrangement tend to range from 5 percent to 10 percent of the student's income for 10 to 15 years, or somewhat higher for shorter contracts. They also shift the risk of career shortcomings from student to investor; thus, providers will price that risk accordingly when offering their terms.

It is likely that an ISA market will develop and will signal clearly which fields are most likely to be rewarded economically. Moreover, ISAs have gained support from a variety of experts and institutions.

On the other hand the student debt run-up has led to some truly bad ideas such as:

  • Handing out even more public funds.
  • Shifting the burden to taxpayers by borrowing more money to aid students.
  • Creating another entitlement program that would harm young people.

ISAs would be a novel way for students to make their way through college without the excessive burden of student loans and at the same time reduce the potential risk that student debt represents for the financial system.

Source: Mitchell E. Daniels, "Could income-share agreements help solve the student debt crisis?" Washington Post, August 20, 2015.

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