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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.

How ISAs work

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.

edly Principles

It is essential that market participants create and adhere to high standards of conduct. These standards would be in addition to any legal regulations that may be imposed on ISAs

Since ISAs are new, edly publishes its core principles in the hope that they will inspire the industry toward best practices that allow for ISAs to flourish as a driver of education affordability, accessibility and quality.

ISAs play a potentially important role in solving the student loan problem while also addressing systemic issues of access, affordability and quality. Many existing education financing options are regressive, expensive and punitive, often creating financial barriers to education. ISAs allow students to pay deferred tuition payments solely based on their income and ability to pay. Designed properly, ISAs link the cost of education to the value it creates, incentivizing schools toward more responsible, student-centric behavior.

edly ISA Principles

edly agrees that it will:

1) Work to offer an alternative to private student loans which is both more affordable and more flexible.

2) Ask schools to have “skin in the game” to ensure alignment of interests with student careers and actual earnings.

3) Seek tuition funding for all students regardless of the field of study.

4) Never use FICO or similar credit scores because they are biased against certain groups of students and generally not appropriate for young people.

5) Ensure that there is a reasonable minimum income threshold below which students would not need to make ISA payments because it would be an economic hardship.

6) Ensure that there is a reasonable cap on the total amount of payments a student would make (related to the cost of tuition) so that they never pay too much regardless of success.

7) Give students time to find the right job after graduation.

edly asks that students:

1) Use their best efforts to make on-time payments each month as required by the ISA agreement.

2) Report salary and raises accurately and on time as they change as required by the ISA agreement.