A Basic Glossary to Income Share Agreements, a New Approach to Student Finance

From:  EdSurge
By:  Tonio DeSorrento (CEO, Vemo Education) & Pam Horne (Vice Provost for Enrollment Management, Purdue University)

In search of alternatives to burdensome student loans, universities, companies and policymakers are increasingly drawn toward the concept of risk-sharing between students and universities. The concept is simple: if a school has a financial stake in the future of its students, it has a greater incentive to prepare those students for rewarding and successful careers.

Getting students to graduate and find meaningful work is critical to enhancing an institution’s reputation and fulfilling its mission. The goal of risk-sharing is to encourage further investment in student retention and success—salient issues from a finance perspective, given that most people who default on their loans have not completed their degree.

Most recently, Income Share Agreements (ISAs)—a concept first pioneered in the 1950’s—have captured the imagination of a growing number of institutions. Purdue’s “Back a Boiler” program, perhaps the best-known example, now allows students to share a portion of future income in exchange for tuition assistance today. In February, federal legislation was introduced to help create a legal framework for ISAs.

But how do Income Share Agreements really work?

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