Income-Sharing Agreements for College Tuition

Source: Quartz, Feb 2018

Theoretically, ISAs incentivize students to maximize their income while repaying investors who assume the bulk of students’ risk relative to private debt. Payments scale with earnings, so high-earners pay more of their income and the share progressively declines as income falls.

The exact percentage depends on their course of study, earning potential, caliber of school and other factors, but terms of 10% of future income for 10 years or more for shorter periods are not uncommon. Below a certain threshold, students pay nothing, and an upper cap can ensure students will never pay back more than a fixed share of the initial value of their ISA.

One of the first firms to enter the US market was the Chilean firm Lumni founded in 2002 (although it only came to the US in 2009) followed by 13th Avenue (2009), Cumulus Funding (2011), Upstart (2012), Pave (2012), and Vemo (2015). Not all are still signing ISAs, but current interest seems to be based on growing demand.

ISAs essentially allow students to pay for today’s tuition out of their future earnings. 

A 2017 American Enterprise Institute study of 400 college and high school students and parents found just 7% of students and 5% of parents even knew ISAs existed.

Related Resource: EdSurge, Feb 2019
<with list of institutions supporting ISAs)

… rather than paying tuition up front, students pay back a portion of their income after graduating and landing a job. And if students don’t land a job, they pay back nothing.

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