Financing Higher Education through Equity, Not Debt: The Case for Income Share Agreements

Abstract

Student loan debt in the United States is $1.6 trillion and rising. The public debate concerning the human capital value vs. the social capital value of higher education has been shifting toward the former and away from the latter standpoint in recent years. I observe how the current system of Federal student loans is proving inadequate for a growing number of students. In an era of rising costs, high college enrollment, slower economic growth, and an aging population, the government provision of free college tuition would likely result in lower educational quality and lower accessibility for prospective students. Income Share Agreements offer a market-based alternative for higher education financing that might offer solutions to most of the problems with existing avenues for higher education financing – the solution involves shifting from relying on debt to finance higher education to financing education as an equity investment. In order to clarify lawfulness, policymakers should instill legal certainty and alleviate the reluctance of investors and prospective students from entering the marketplace.