ISAs and the Student Debt Issue

ISAs and the Student Debt Issue

Problem

The student debt crisis is well known for its staggering statistics. Those numbers, however, don’t tell the whole story. Behind them are countless other problems caused by student debt including income inequality, education access limitations, and social immobility. One of the main culprits of these problems are high cost and punitive private student loans. Income Share Agreements (“ISAs”) are an inherently more affordable and more flexible alternative to private student loans.

Properly constructed ISAs align the interests of students, schools, and investors.

ISAs as a Solution

Students pay a fixed percentage of their earnings – only when and IF they earn over a certain threshold income. Payments are made over a fixed payment term and are designed to be affordable. Unlike student loans, there is never accrued interest. The total amount of payments over the term of the ISA are capped at an amount which is usually around 1.5 times the amount of tuition. Depending on a student’s income, the total payments over the term of the ISA will often be less than the payment cap and may even be less than the tuition amount. Those features, together with other flexible features, make ISAs a great alternative to private student loans for many students.

ISA providers require schools to align their financial incentives with students and investors. This “skin in the game” includes financial incentives to graduate students and help them find good jobs. For this reason, career-focused schools are attracted to ISAs. In fact, many schools use ISAs as a way to signal to students that they are willing to invest in them.