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Income Share Agreements — Market Structure, Communication, and Equity Implications of a Student Loan Alternative: Technical Report

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Research Questions

  1. What are the most- and least-common ISA contract terms, student supports, and eligibility criteria?
  2. How do members of the public perceive ISAs and ISA marketing?
  3. What information about ISAs is available to prospective students, and how accessible and accurate is it? To what extent do ISA materials employ potentially misleading or predatory language?
  4. Are ISAs implemented in ways that unfairly target more-vulnerable groups of learners or contribute to inequitable outcomes? For example, are ISAs disproportionately concentrated in institutions or fields that serve more-vulnerable learners?

Postsecondary education is a key pathway to economic mobility for many Americans, but financial challenges often make it difficult for learners to pursue and complete their education. Obtaining financing for postsecondary education can be a barrier to access for some students. The process is complicated, and many programs are ineligible for traditional student loans.

One alternative postsecondary financing approach with broad potential use is an income share agreement (ISA). Under an ISA, the learner promises a share (income percentage) of their post-completion income to a funder for a set period (repayment term) in exchange for immediate money for school. ISA payments are only required when the learner's earnings exceed a set amount (i.e., when earnings are above the income threshold).

Although ISAs can be beneficial, not much is known about how they function in practice. For example, there are no industrywide requirements for what information ISA-offering institutions provide to learners. There are few regulatory safeguards to prevent the use of potentially misleading language in ISA documentation. The number of postsecondary institutions offering ISAs is unknown, as are the characteristics of these institutions.

The authors of this report aim to fill some of these gaps. Using a novel dataset that they compiled to describe the ISA market, the authors examine how ISA structure, implementation, and communication vary; analyze the language used to market ISAs; and assess implications for systemic inequities. This report provides their findings and recommendations for federal and state policymakers, financial aid professionals and learners, and ISA-offering institutions.

Key Findings

  • ISAs are an alternative way to finance postsecondary education and training.
  • There appear to be two distinct sectors within the ISA market. One is composed of Title IV institutions, which are typically two- and four-year colleges and universities. The other is composed of non–Title IV institutions, which are typically workforce development and training programs, such as bootcamps.
  • ISA contract terms are interrelated — for example, a high income percentage is often associated with a short repayment term — and the learner must evaluate the terms together to understand the repayment obligation. There is no single metric that learners can use to assess and compare ISA contract terms.
  • Public awareness of ISAs is low. However, about 40 percent of adults nationally said that they would consider an ISA to pay for their postsecondary education, which suggests that the idea has appeal.
  • The information that learners need to make an informed decision about an ISA is often missing from publicly available documentation. For example, one-half of ISA-offering institutions did not provide the minimum information that learners need to evaluate an ISA.
  • The authors found evidence to suggest that historically underserved groups (such as learners who are Black, Hispanic, or experiencing low income) are disproportionately exposed to ISAs, but they found no evidence that these groups receive systematically different ISA terms. Therefore, the potential for ISAs to disproportionately harm or benefit such learners in the future is substantial.

Recommendations

For federal and state policymakers

  • Consider the intended purpose, potential interactions among ISA terms, the structure of the ISA market, and equity implications when designing ISA regulation.
  • Develop guidance to standardize disclosures — that is, how ISAs are communicated to learners.
  • Collect standardized learner outcome data at all postsecondary institutions, not just a subset.

For financial aid professionals and learners

  • Request key ISA information that is not publicly available.
  • Consider the full variety of financing options and — when possible — compare terms.

For ISA-offering institutions

  • Provide enough information for learners to make an informed decision.
  • In the absence of federal or state guidance, convene within the industry to develop communications standard templates and share promising practices.
  • Advertise any supports offered that are designed to help ISA learners graduate and find employment.
  • Collect learner outcome data to aid equitable and sustainable pricing of ISA contracts.

Research conducted by

The research described in this report was sponsored by the National Endowment for Financial Education and conducted by the RAND Lowy Family Middle-Class Pathways Center within RAND Education and Labor.

This report is part of the RAND research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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