The Potential Market for Income Share Agreements Among Low-Income Undergraduates: An Issue Brief for Policymakers and Advocates

With the price of college rising unabatedly and concerns mounting over education debt, each new policy or practice that holds the promise of containing prices or helping graduates better manage their borrowing is met with anticipation. Income share agreements (ISAs)—in which students pledge a portion of their future income to an investor who provides money today to help meet college expenses in exchange—are one such innovation.

Proponents of ISAs argue that they offer several advantages over student loans; unfortunately, the widespread use of ISAs to support the educational aspirations of low-income undergraduates in particular may run headlong into the priorities of those offering this type of financing.

This first brief in a series about ISAs explores their potential to serve low-income undergraduate students. The primary goal was to estimate the number of such students who might plausibly be offered an ISA in today’s market.

Key Findings

• Only a handful of firms are actively offering students ISAs in support of their educational pursuits.
• If ISAs were to become widely available to support undergraduate study, under current underwriting criteria, we estimate that no more than 7 percent of each year’s entering, first-time student cohort would likely be eligible to receive this type of funding (about 272,500 students).
• Given past and current practice, the potential of ISAs for lower income students appears even smaller, with no more than 5 percent of first-time, lower income students likely being eligible for an ISA (about 82,000 students).
• If there were changes to the supply side of the ISA market, then students who are likely to earn modest incomes but who have relatively lower funding needs might be targeted for ISAs.
• Industry experts suggest that the number of firms poised to offer ISAs either directly to students or indirectly through other types of organizations (e.g., alumni associations) may grow through 2016, further expanding the usefulness of this innovation in financial aid.