Income Share Agreements Research Articles

Embedded Classed and Raced Academic Capitalism in an Innovative “Solution” to College Costs: Income Share Agreements at two Public AAU Research Universities

College affordability concerns have led to new “solutions’’ for financing college costs, such as income share agreements (ISAs). Drawing on a racialized understanding of academic capitalism, we explore the intersection of higher education, markets, and the state in how ISAs are marketed by two public universities. We find ISAs are advertised as market-based solutions, framing universities as altruistic problem-solvers and students as philanthropic investors. Yet, we also find that institutions’ website promotion of ISAs is raced and classed, targeting current “traditional,” White, upper-middle class students. Finally, we compare institutional narratives to federal guidance regarding ISAs, revealing further blurring between the public sector and private marketplace.

Student Loans and Borrower Outcomes

This review surveys the literature on student lending, emphasizing empirical studies of default, credit outcomes, and earnings. Student loans exist to alleviate credit constraints and, in theory, may have different effects on outcomes through multiple channels. There is significant heterogeneity in outcomes across types of borrowers, with many adverse outcomes driven by a subset of primarily for-profit institutions. We conclude by exploring policy options such as student loan forgiveness, income-driven repayment, income-share agreements, and penalizing schools for adverse borrower outcomes. These policies lead to possible equity and efficiency trade-offs.

Income share agreements offer upskilling opportunities for adult learners

SAN DIEGO — “There are always going to be resources for unemployed people. But where are the resources for those people who make minimum wage, or just above minimum wage? In San Diego, that's not going to take you far,” said Alastair Penny, Senior Manager at the San Diego Workforce Partnership. One such resource to help educate more of your community might be to invest in, or partner with, an organization that offers an income share agreement for college education.

Income share agreements offer upskilling opportunities for adult learners

SAN DIEGO — “There are always going to be resources for unemployed people. But where are the resources for those people who make minimum wage, or just above minimum wage? In San Diego, that's not going to take you far,” said Alastair Penny, Senior Manager at the San Diego Workforce Partnership. One such resource to help educate more of your community might be to invest in, or partner with, an organization that offers an income share agreement for college education.

Income share agreements offer upskilling opportunities for adult learners

SAN DIEGO — “There are always going to be resources for unemployed people. But where are the resources for those people who make minimum wage, or just above minimum wage? In San Diego, that's not going to take you far,” Alastair Penny, Senior Manager at the San Diego Workforce Partnership, said. One such resource to help educate more of your community might be to invest in, or partner with, an organization that offers an income share agreement for college education.

Promises and Profit in “Debt-Free” Higher Education: The Geographies of Income Share Agreements in the United States

As student debt in the United States rose to $1.7 trillion in 2021, the value and accessibility of higher education has been a subject of fierce public debate. In this context, income share agreements (ISAs) are framed as an alternative to conventional student loans. ISAs entail investors paying a student’s tuition in exchange for a share of the student’s future income. As the use of ISAs increases, especially within U.S. vocational schools, there is evidence that ISAs have used predatory financial practices aimed at marginalized students. Motivated by the rapid growth of ISAs in the United States and the relative absence of geographic attention to them, this article discusses their nature and broader significance to geographic debates. Informed by gray literature, news articles, industry documents, and the scant academic writing on ISAs, we discuss the characteristics, histories, and geographies of ISAs before examining the roles and motivations of three involved constituencies: students, higher education institutions, and investment intermediaries. In doing so, we highlight how ISAs reorient who pays for education and when, what sort of education is paid for, and how private markets profit from higher education. We then highlight the broader significance of ISAs to geographical understandings of (1) the financialization of social reproduction, (2) geographies of education, and (3) digital capitalism. We argue that ISAs’ individuating logics and broader context of social reproductive crises are revealing of a wider trend toward private profit via predatory inclusion, accelerated by financial technologies.

Income Share Agreements and TILA's Ban on Prepayment Penalties

This memo explores how the Truth in Lending Act’s (TILA) consumer protections prohibit a prominent feature of Income Share Agreements (ISAs) known as a “prepayment penalty”—a lending industry practice that forces borrowers to pay an extra sum if they want to pay off a debt early. Despite a federal ban on prepayment penalties in private student loan contracts, the authors find that these penalties to be common in ISA contracts. By blocking borrowers from prepaying or refinancing, ISA providers are able to trap borrowers in high-cost credit for years. This mirrors the same harmful practices often used by subprime mortgage lenders in the run up to the financial crisis more than a decade ago. The authors demonstrate that a typical ISA is a “private education loan” as defined by the TILA, and therefore ISAs should be subject to the federal ban on prepayment penalties. Based on this analysis, this memo offers recommendations for the Consumer Financial Protection Bureau, state regulators and law enforcement, and the Department of Education to take immediate action to protect students who use ISAs.

Income Share Agreements and the FTC’s Holder Rule

The results of an investigation by the Student Borrower Protection Center offer new evidence that for-profit coding bootcamps and ISA companies may be systemically violating federal law by omitting a legally mandated term from the contracts underlying students’ ISAs—language required under the Federal Trade Commission’s (FTC) “Holder Rule.” The Holder Rule is a federal regulation intended to help consumers when a defective or fraudulent product or service is purchased with credit extended directly by the seller or arranged by the seller. The rule allows the consumer to assert the seller’s fraud (or the product’s defect) as a defense to repayment of their credit obligation, even where a new entity owns their credit contract—or even to sue for reimbursement of money already paid for the fraudulent or defective products or services. In addition to being against the law, the omission of this required contract language could leave tens of thousands of students holding the bag when lofty promises from coding schools disappointingly manifest in low-quality educational products.

Gendered “Risk” and Racialized Inheritance: Toward a Feminist Analysis of Debt in US Higher Education

Feminist Studies 47, no. 3. © 2021 by Feminist Studies, Inc. 729 Leifa Mayers Gendered “Risk” and Racialized Inheritance: Toward a Feminist Analysis of Debt in US Higher Education The financial aid system in the United States has expanded significantly in recent years, propelled by both the increasing costs of higher education and the greater social and economic emphasis placed on obtaining a bachelor’s degree. Over the past two decades, the percentage of undergraduate students who completed college with debt has more than doubled, to 65 percent, and graduates in the class of 2018 had an average of $29,200 in debt.1 As student debt has expanded, political debates about this crisis and its effects have burgeoned. Recent conversations about how to reform the student loan system have increasingly centered on how the responsibility for risk should be allocated among borrowers, institutions of higher education, and lenders. While some researchers urge colleges and universities to take responsibility for high rates of default by student borrowers, others call upon students to “share[e] responsibility for their personal choices”2 and 1. Veronica Gonzalez, Lindsay Ahlman, and Ana Fung, Student Debt and the Class of 2018: 14th Annual Report, (Oakland, CA: The Institute for College Access and Success, September 2019), 4. 2. Carlo Salerno, “Let’s Fund College the Same Way Investors Fund Start-Ups,” Forbes, August 19, 2015. 730 Leifa Mayers mitigate their own risk by choosing remunerative majors and careers.3 Prominent policy researchers have promoted “income share agreements ,” through which private investors exchange up-front funding for a percentage of future income that is paid back over a period of time following graduation.4 Meanwhile, recent proposals to reform higher education lending have included “institutional risk-sharing,” which tethers institutional viability to graduation and employment outcomes.5 These political and policy discourses are intertwined with materialities of risk in an increasingly financialized system of higher education. Through a series of legislative reforms that began in 1978, the opportunity to discharge most federal and private student loans in bankruptcy was first delayed and then eliminated.6 Unlike car and house loans, student loan debt is secured not by property, but by the person and their future labor.7 Thus, not only is the magnitude and pervasiveness of student loan debt “financializing” student life, but it also refashions student subjects as entrepreneurs and risk managers.8 While the risk attendants of debt operate differently in student loan borrowing than speculative financial markets, they nonetheless inflect student borrower subjectivities. Martin and colleagues describe the consolidation and dispersal of risk as primary instruments of private wealth generation within finance capitalism.9 Whereas securitization bundles 3. Joel Best and Eric Best, review of Game of Loans: The Rhetoric and Reality of Student Debt, in Beth Akers and Matthew M. Chingos, Sociology 54, no. 4 (2017): 373. 4. Miguel Palacios, Tonio DeSorrento, and Andrew P. Kelly, Investing in Value, Sharing Risk: Financing Higher Education Through Income Share Agreements (Indianapolis, IN: Center on Higher Education Reform, American Enterprise Institute, February 2014), 7–12; Investing in Student Success Act of 2017, S. 268, 115th Cong. (2017); Alison Griswold, “Because You’re Worth It: Afraid of Student Loan Debt? Sell Stock in Yourself Instead,” Slate, April 10, 2014. 5. Student Protection and Success Act, S. 1525, 116th Cong. (2019); Student Protection and Success Act, S. 2231, 115th Cong. (2017). 6. The Bankruptcy Reform Act, Pub.L. 95–598, 95th Cong. (1978); Bankruptcy Abuse Prevention and Consumer Protection Act, Pub.L. 109–8, 109th Cong. (2005). 7. Jeffrey J. Williams, “Student Debt and the Spirit of Indenture,” Dissent 55, no. 4 (2008): 75. 8. Randy Martin, Financialization of Daily Life (Philadelphia: Temple Press, 2002), 1. 9. Randy Martin, Michael Rafferty, and Dick Bryan, “Financialization, Risk and Labour,” Competition and Change 12, no. 2 (2008): 121. Leifa Mayers 731 disparate financial assets and facilitates their movement through the market, derivatives spread out financial value to minimize the effects of market volatility. Thus, investors can purchase bundles of loans in the form of bonds and quickly resell or disperse their value. Although federal student loans are not similarly commodified, they represent financial risk that is affixed to the individual borrower...

Inequitable Student Aid: A Case Study of Disparate Lending Practices and Educational Redlining Tactics in the Market for Income Share Agreements

Inequitable Student Aid: A Case Study of Disparate Lending Practices and Educational Redlining Tactics in the Market for Income Share Agreements

Income-Share Agreements and Innovative Finance:Strengths and Challenges

In Short An Income-Share Agreement (ISA) is an education financing tool through which a student promises a certain percentage of future income (the “income share”) for upfront funding for education...

Unlocking Opportunity at Texas Christian University: Are Income Share Agreements the Master Key?

As the nation’s growing student debt obligations surmount $1.6 trillion, some post-secondary education institutions are investigating innovative solutions for college financing to replace traditional loans. Income Share Agreements (ISAs) represent a popular strategy for some trade and state universities; through legal contracts, these institutions assume the burden of remaining education costs after grants and scholarships in return for a predetermined percentage of the student’s future income over a specified time period. This thesis will investigate the viability of ISAs specifically at private, nonprofit, four-year institutions, using Texas Christian University (TCU) as a case study. Using a multivariate distribution of correlated stochastic variables, Monte Carlo simulation generated thousands of possible net present value (NPV) scenarios for ISA contracts with the Neeley School of Business, the site of a potential pilot program. Most business major ISA contracts demonstrated a probability greater than 98% to return a positive NPV. These findings solidify recommendations to implement such a pilot program within the Neeley School of Business with the hopes of expanding these financial aid tools to all major programs in future years. An income share program at TCU could not only unlock opportunity but also maintain the university’s financial stability in a time of economic downturn.

Applying State Consumer Finance and Protection Laws to Income Share Agreements

This article analyzes the application of state and certain federal laws to Income Share Agreements (“ISAs”) in light of previous scholarship concluding that ISAs meet the definitions of “credit” and “debt” under federal statutes including the Equal Credit Opportunity Act (ECOA), the Fair Debt Collection Practices Act (FDCPA), the Truth in Lending Act (TILA), and the Consumer Financial Protection Act of 2010 (CFPA). The paper concludes that a wide assortment of consumer protection laws enforceable by state regulators and attorneys general apply to the marketing, origination, servicing, and collection of ISAs. State consumer protection statutes, which prohibit unfair and deceptive acts or practices in any trade or commerce affecting residents, apply to educational ISAs. This paper identifies several ways in which companies and schools marketing ISAs may run afoul of these generally applicable statutes. In addition, typical education ISAs qualify as “loans” for the purpose of many state consumer finance statutes, as such are subject to a variety of regulations from usury limits to licensing requirements for ISA originators and servicers. The growing market of educational ISAs requires a comprehensive approach by state education and financial regulators, as well as attorneys general, in order to protect students.

Credit by any Other Name: How Federal Consumer Financial Law Governs Income Share Agreements

This article analyzes whether Income Share Agreements (ISAs) are governed by federal consumer financial law — particularly the Equal Credit Opportunity Act (ECOA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), the Truth in Lending Act (TILA), and the Consumer Financial Protection Act of 2010 (CFPA). The paper concludes that all of these federal laws apply to ISAs because ISAs meet the statutes’ various gate-keeping definitions of “credit” and “debt.” Although the question of whether ISAs are “credit” has not yet been addressed by the courts, our analysis reveals that ISAs share essential characteristics with traditional student loans and therefore should be treated the same. Critically, ISAs grant student borrowers the right to defer payment for educational services they receive. They also create debts for borrowers because borrowers are obligated to pay back a percentage of their post-graduation salaries for a defined period or, in the case of default or early repayment, a set amount that is typically a multiple of the amount borrowed. These repayment options result in students either paying back their ISAs in more than four installments or incurring a finance charge. As this article explains, these features of ISA repayment put them squarely within the coverage of existing federal consumer protection law. And the private entities providing them are, in turn, subject to regulation and enforcement under current federal law.

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.

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

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.

Solving Student Debt or Compounding the Crisis? Income Share Agreements and Fair Lending Risks

Income Share Agreements (ISAs) have been touted as a solution to the recent staggering increases in student debt. That debt crisis is a civil rights crisis. On average, Black Americans have more student debt, which they face against a backdrop of stark disparities in wealth, income, and related metrics. Although the U.S. is desperately in need of solutions for the student debt crisis — and the accompanying racial and ethnic disparities — features of existing ISAs threaten to exacerbate, not mitigate, inequalities. ISAs are essentially educational loans that students agree to pay back using a percentage of their future income. ISAs come in a variety of forms — including differences in terms and conditions, the parties offering them, and the quality and types of educational programs funded. In the abstract, these arrangements could be an interesting alternative to the existing student loan regime. However, while existing programs are not equal in terms of benefits and risks, there is evidence that some variations of ISAs are being used to further new iterations of a classic American tragedy: targeting minority communities for exploitative and predatory products. And even in the more benign forms of ISAs, some features used to set terms and conditions — such as school- or major-based distinctions — risk unnecessarily perpetuating disparities adverse to historically underserved groups. This article assesses ISAs under core anti-discrimination frameworks such as traditional disparate treatment and impact, as well as reverse redlining. Although this article focuses on the Equal Credit Opportunity Act (ECOA) — the primary federal statute prohibiting discrimination in credit transactions — it also highlights other anti-discrimination statutes that may apply to ISAs, including state and local fair lending and public accommodations laws.

Income Share Agreements: A Better Way to Encourage Human Capital Creation

The growth and preservation of Human Capital impacts our quality of life. Education is the dominant factor for increasing human capital. Recently there has been a wave of financing opportunities that utilize risk-sharing features. These Income Share Agreements are gaining traction as a popular form of education financing, offering students more flexibility in meeting their financial obligations than traditional student loans. In this white paper we describe the general structure of the Income Share Agreement (ISA), illustrate the advantages of ISAs compared to student loans through Expected Utility analysis, and discuss the reasons why we believe ISAs will continue to gain momentum as a preferred mechanism for funding human capital development through education.

International Evidence on Income Share Agreements: Perceptions and Characteristics of ISAs Recipients

Income Share Agreements (ISAs) have been proposed as an efficient financing scheme for higher education that could also enhance postsecondary outcomes. Yet, there is not enough knowledge about ISAs in education. This paper combines administrative and survey data on students who were offered an ISA by a Latin American provider and offers several novel findings on (1) the factors that explain student ISA take-up and (2) students’ perceptions of ISAs. First, students’ perceptions of ISAs, age, relationship status, and family income are important determinants of the take-up decision. Second, students who took ISAs expect higher future income, but have a worse academic performance than non-takers, suggesting that adverse selection might be a challenge for the large-scale implementation of ISAs. Third, while ISA takers and non-takers do not significantly differ in terms of their attitude towards risk, students are less likely to take an ISA if they perceive it to be riskier than a loan. Lastly, students perceive that ISAs increased their persistence and allowed them to stay enrolled at their preferred institution and major. These findings are relevant for the design and policy evaluation of ISAs both in the US, where legislation has been introduced and ISA programs are proliferating, and in other countries considering reforms in higher education financing.

Property and capital in the person: Lockean and neoliberal self‐ownership

Understanding neoliberalism remains a crucial task for critical theories of the present. While Marxist approaches such as David Harvey’s tend to underestimate its novelty and struggle to explain its pervasiveness, Foucauldian perspectives are better equipped to understand neoliberalism in its singularity. These perspectives culminate in the diagnosis of the emergence of a specifically neoliberal subject, the entrepreneurial self. One implication of this diagnosis that has not received nearly enough attention is neoliberal’s implicit subscription to the doctrine of self-ownership: The entrepreneurial self is necessarily self-owning, even if that often remains implicit in neoliberal theory. Starting with a discussion of liberal self-ownership (Levellers, Locke), the article shows that neoliberal rationality is premised on self-ownership, discussing human capital theory and Income Share Agreements. The focus on neoliberal self-ownership and its consequences, it is argued, can be used for an immanent critique of neoliberal rationality.