Perceptions of Income Share Agreements: Evidence from a Public Opinion Survey

With more than 38% of all 2015–16 undergraduates taking out student loans, total student loan debt of over $1.3 trillion, and a projected cumulative student loan default rate of nearly 40 percent by 2023, Income Share Agreements (ISAs) have gained traction, emerging as an alternative financial aid mechanism (Fain, 2017; Feiveson, Mezza, and Sommer 2018; National Center for Education Statistics 2018; Oei & Ring, 2015; Strada Education Network and Gallup 2018; The Institute for College Access and Success 2014, 2016). ISAs, often presented as “loan alternatives”, are income contingent financing mechanisms that provide individuals with access to capital to pay for college after individuals commit to pay a specified percentage of their future income. ISAs have been discussed at the federal and state levels, and they have expanded into the private sector through non-profits as well as higher education institutions such as Purdue University (Purdue University 2016).

As more states and institutions consider implementing ISAs programs, the public is increasingly exposed to policy debates on the merits and perils of ISAs. To some, ISAs provide strong downside protections to students while making it easier for students of all backgrounds to obtain financing (Palacios, DeSorrento, and Kelly 2014); because ISAs do not require a co-signer and repayment is entirely dependent on the student’s income, ISAs may be particularly attractive among credit-constrained and debt-averse students, some of whom underinvest in education. However, others criticize ISAs as modern day indenture servitude (Krantowitz, 2013; Roose, 2013).

With the expansion of this type of higher education financing system, ISAs are particularly ripe for academic scholarship. Previous theoretical models have shed light on the potential impact of ISAs on education (Del Rey and Racionero 2010; Author 2017; García-Peñalosa and Wälde 2000), but lack of available data limits tests of the effects of ISAs. Importantly, little is known about the perspective of the public on the utilization of ISAs in the higher education marketplace. Efforts to explore perceptions of ISAs have been undertaken through focus groups (Holt 2016; Peek, Mason, and Soldner 2016). However, the nature of such exploratory studies do not allow for generalizations at the national level.

This study utilizes nationally representative public opinion data for approximately 2,500 U.S. residents that are 18 or older to explore public opinions on ISAs. This survey, complete with detailed demographic information including previous experience with financing education, political views, and beliefs about higher education policies, provides a glimpse into the previously unexplored opinions of the U.S. public on ISAs. Our findings indicate that respondents who support other higher education policies such as Pell Grants, tuition-free college, and deferred tuition are also more likely to support ISAs. In addition, we find that respondents’ experiences with financing higher education and experiences with sending children to college are correlated with support for ISAs. Moreover, we find that racial and ethnic identity is also correlated with the level of support for ISAs. These results are among the first to characterize the level of public support or opposition to ISAs and to explore the factors associated with ISAs support and opposition.

The paper is organized as follows: the first section provides a general overview of ISAs models and markets. The second section situates this study in relevant literature and section three presents some examples of the use of public polling data to explore perceptions related to college affordability and financing mechanisms. The fourth section explains the analytical approach and methodology implemented in the study. The remaining sections include a description of the results followed by a discussion of implications for policy and practice.

Isas background

ISAs were first proposed in the U.S. in 1955 by Milton Friedman. He proposed a financial instrument that would allow an investor to buy a share of an individual’s earnings to finance academic training on the condition that the individual pay the lender a specified fraction of future income (Friedman, 1955). This economic theory was put into practice in 1972 by Yale University in the Tuition...