Income Share Agreements
Funding education through a controlled share of future income
The United States is currently experiencing a crisis in the field of education financing.
The cost of higher education has increased massively, yet secondary education has never been more essential to obtaining financial stability.
Defaults on student debt have skyrocketed and now have the highest 90+ day delinquency rate of all household debt.
The psychological burden of student debt has been shown to negatively affect personal mobility, career and income growth, additional education, and even family planning.
Our solution is a new financing structure for education that makes obligation a function of outcome.
Properly designed and operated, ISAs can reduce the profound information asymmetry in postsecondary education that disadvantages students and schools alike.
For students, ISAs promote social mobility by de-risking the decision to pursue higher learning.
For schools, ISAs increase enrollment and drive resources toward proven programs.
For investors, ISAs are an innovative fixed income asset class with an added social impact component.
Increasing transparency and mitigating the risks associated with higher education benefits everyone, but the greatest benefits accrue to those who are most negatively impacted by the status quo.
How it works
An ISA is a financing tool that ties student payments for education to success after school.
With ISAs, students agree to pay a
small percentage of their income for a fixed period after graduation.
There is no set principal or interest that must be repaid.
Once a student graduates and starts earning a living, they’ll document their income with our servicing partner, who will calculate their monthly payment obligation.
Any time income changes, the obligation changes as well.
When a borrower earns less than the income threshold, their obligation is zero. In other words, the borrower only makes payments when they’re making money — and their payments are always a low, manageable amount relative to their income.
ISAs are a flexible form of financing. To better understand how they can be structured, here are a few key terms to keep in mind:
The fixed percentage of monthly income that borrowers will be required to pay when they are earning more than the Income Threshold.
Borrowers are obligated to make payments only when earning more than the Income Threshold. During periods when a borrower’s annual income is less than the Income Threshold, monthly ISA payments are suspended.
Number of Monthly Payments
The maximum number of monthly payments that borrowers are required to make as part of an ISA contract. Once borrowers meet this number of payments, they are no longer required to make ISA payments, regardless of how much was ultimately repaid.
This provides an upper bound on how much borrowers can pay in an ISA contract. Limits may be applied to the total amount a borrower pays and/or to the amount a borrower pays in a given month, year or as measured by APR.
The maximum length of an ISA contract, after which the agreement expires regardless of the number of payments made or the aggregate payment amount.
Student benefits of an Outcome-based model
ISAs scale repayments to income, ensuring that payments are always affordable. Under ISAs, borrowers earning below a certain level of annual income don’t need to make payments, meaning that need-based defaults are all but elimitated.
Reducing the payment burden to borrowers with lower earnings means those borrowers can focus their financial resources where they are most needed and not on avoiding default on student loans during times of financial hardship. Most importantly ISAs reduce need-based defaults and the associated financial and emotional burdens default creates, including reduced access to future credit.
ISAs seek to empower students to invest in education with the freedom to know that repayments will always be affordable, giving students the confidence to invest in education and career development without fear of punitive debt burden.
ISAs are focused on a student’s future earnings potential, not on their credit history. This is why ISAs do not require a cosigner, and eligibility is not predicated on a lengthy or perfect credit history.
Education provider benefits of an Outcome-based model
Access to financing can be a key factor in degree completion. And, for students who are wary of student loans and the risks they carry, ISAs are a flexible and affordable alternative that removes uncertainty over future employment from students’ financial decision making.
Ensuring that student payments are affordable and mirror the career success of graduates is a key factor in eliminating risks, facilitating enrollment, and validating educational investment among students.
ISAs align higher education providers’ curriculum and quality of training with students’ career outcomes. Making ISA finaning available signals to students that a school invests in students and their futures.
For education providers seeking to validate career-oriented and skills-based curriculum, ISA performance and outcomes can serve as a key indicator.
Investor benefits of an Outcome-based model
ISAs are a new type of fixed income asset that offer stable returns which are uncorrelated with interest rate driven products.
ISA revenues move with borrowers’ earnings, meaning that ISAs inherently carry protection against inflation.
ISAs break financial barriers to higher education access and successful degree completion. Investors in ISA programs boost student-focused financing without sacrificing financial return.
In the long-term, ISAs align the cost of education with the economic benefits and drive students towards in-demand skill sets that meet evolving labor market demands.