Could the ISA supplant the student loan?
- Income share agreements (ISAs) are relatively unknown, but offer an alternative option for college affordability by paying upfront in return for a percentage of a student's future income, according to a report by the American Institutes for Research.
- ISAs can gain legitimacy with students by partnering with schools, as Purdue University does with its ISA program, and can offer stability lacking in student loans because the percentage is taken out of a graduate’s pay, not a fixed monthly payment.
- However, ISAs have hurdles to overcome before they could be widely used, as students and parents are unfamiliar with the practice and may be under the impression that ISAs are predatory in nature — again backing up the importance of partnerships with schools to alleviate this anxiety.
ISAs have the potential to be a real alternative to student loans. The initial concern is that this could potentially steer companies or universities offering ISAs away from suggesting them to students who may be on a career track that might not result in a larger income. However, this has not been the case with the Purdue ISA plan, according to reporting from Real Clear Education. For example, a Purdue student paid for school on a mix of federal loans, private loans, a scholarship and an ISA program. The maximum payment for the ISA was capped and was based on her projected income post-graduation. Finally, she would not have to make payments if she made too little in a month.
The benefits of ISAs do seem to address the increasing concerns regarding student loans, and as the total loan burden continues to grow, schools could feel pressure to utilize ISAs in order to attract students wary of burdensome loans. Still, ISA supporters should be cautious about universities and ISAs, ensuring that they do not begin selectively choosing students based on their projected ability to quickly repay the loans.
- American Institutes for Research The Income Share Agreement Landscape: 2017 and Beyond