The Case for Income-Share Agreements

By Daniel Pianko and Michael B. Horn

June 12, 2017

At a time when a college degree is table stakes for the information economy, our backward-looking system of private lending presents a daunting barrier for low-income students who are faced with a stark choice: Take on expensive loans with burdensome interest payments that will follow them for years, or take a pass on a college education.

But a bill before Congress may soon shift the student lending paradigm from parents to potential and enable students to finance their education with a share of future earnings. Introduced by Florida Senator Marco Rubio, who famously needed 16 years and a book deal to pay off his student loans, the legislation codifies treatment of loan alternatives called Income Share Agreements (ISAs). These agreements allow colleges to share risk with students by underwriting tuition costs based on the amount the student is likely to earn, not who their mother is or what their FICO score may be.

ISAs start with a simple premise: The amount that students pay for college should be based on the value that they receive for their education.