Despite Buzz, Income Share Agreements Unlikely to Aid Most Poor Students Looking for Alternative to College Loans, AIR Study Finds

Washington, D.C. – A relatively new college funding model designed as an alternative to loans is unlikely to help most students, particularly poor students who need it most, according to a new study.

The American Institutes for Research study examines the potential of income share agreements (ISAs) to combat the college loan crisis that is leaving thousands of graduates and drop-outs each year with crushing debt.

ISAs essentially allow investors to buy stock in students. Organizations fund college expenses in exchange for a share of students’ future earnings for a fixed period after college. Unlike most student loans, these aren’t for a set amount and carry no interest.

The study comes as ISAs are gaining attention in political and policy circles. Politico recently named ISAs a “promising practice” to reduce student debt. Lawmakers from both parties have submitted legislation that would promote their use, and two GOP presidential candidates—Sen. Marco Rubio, R-FL, and Gov. Chris Christie of New Jersey—have touted them in campaign speeches.

However, relying upon data from the U.S. Department of Education’s National Center for Education Statistics (NCES) and a review of practices from websites of eight firms that offer ISAs, AIR researchers found that current lending criteria would prevent most students from receiving an ISA. Those criteria limit ISAs mainly to students who are high ability, attend prestigious institutions or major in lucrative fields of study—criteria, in other words, that exclude the bulk of students seeking financial assistance.

The study found:

  • Only a handful of firms actively offer ISAs to fund education.
  • Even if ISAs became more widely available, under current underwriting criteria, no more than 7 percent of each year’s entering students—roughly 272,500 students—would likely be eligible to receive this type of funding.
  • Given past and current lending practices, the potential for lower income students appears even smaller. No more than 5 percent, or 82,000 low-income students, would likely be eligible for an ISA.
  • More students would qualify for ISAs if firms loosened current underwriting criteria. In a more inclusive ISA market based on the number of students in 2009 who, six years after entering postsecondary education, were employed and who had a monthly student loan payment of no more than 10 percent of their monthly income, researchers found, ISAs could support up to 14 percent of each year’s incoming students (about 534,080 students) and up to 18 percent (about 321,450 students) identified as low-income.

“The idea of ISAs is a good one—in theory,” said Matthew Soldner, a senior researcher at AIR and lead author of the report. “But their potential to help those most in need is unlikely to be realized without some fundamental rethinking about who actually gets the benefits.”

The idea behind ISAs has been around since at least the 1950s, but it has become more popular as skyrocketing tuition has fueled the current student debt crisis. In 2002, a Vanderbilt University professor co-founded Lumni, a for-profit company that offered loans to students in four South American countries.

The AIR brief is the first of three devoted to ISAs scheduled for release this fall. Future briefs will cover policy considerations for legislators and colleges if ISAs became more widespread and what parents and students need to know about financial disclosures where truth-in-lending statutes do not apply.

View the brief:The Potential Market for Income Share Agreements among Low-Income Undergraduates.”

About AIR
Established in 1946, with headquarters in Washington, D.C., the American Institutes for Research (AIR) is a nonpartisan, not-for-profit organization that conducts behavioral and social science research and delivers technical assistance both domestically and internationally in the areas of health, education and workforce productivity. For more information, visit


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