New Report Explores the Future of Income-Share Agreements

Congress should consider this promising new approach to higher education finance

NEW YORK, NY — As the idea of “debt-free” college takes hold among presidential hopefuls, a new approach to higher education financing takes debt out of the equation altogether. By using an equity-based model, income-share agreements (ISAs) sidestep many of the problems of traditional student lending. A new Manhattan Institute report, kicking off its “Solutions from Beyond the Beltway” series, explains the promise of income-share agreements and explores future paths and potential pitfalls to widespread implementation.

Authors Sheila Bair, former FDIC chair and former president of Washington College, and Preston Cooper, research analyst at the American Enterprise institute, explain that problems with the current student lending system are rooted in the issue that debt is simply not an optimal model for risky, unsecured investments like education. Equity, however, transfers risk from student to investor, ensuring that payments are never disproportionate to the student’s ability to pay. Under this model, the investor pays for the student’s education in exchange for a small percentage of the student’s future earnings over a set period.

Moving forward, the authors suggest that Congress should lower barriers to ISAs by providing legal clarity to this new financial product, balancing consumer protections with flexibility to experiment.

Click here to read the full report.