Income Share Agreements - The next step in higher education affordability?

The student loan crisis has become a serious concern nationally, and numerous institutions of higher education are looking into alternative funding for students to help make their schools a more affordable option, with an eye also for retaining students who might be either unable or unwilling to seek more federal or private student loans.

Income share agreements (ISA) could be the next step in higher education tuition flexibility. As colleges and universities continue to seek ways to make their institutions more appealing to students, and students continue to seek institutions with more reasonable funding, ISAs could help solve both dilemmas. The agreements are contracts between a student and their school. It results in the student receiving funding for their education in exchange for providing a portion of their income after graduation to the institution for a specified period of time. This is a marketable program for many schools; it can make them a more attractive option for students, and it also benefits the students as they look into the future, knowing their debt payments will not exceed a fixed percentage of their income.

The income share agreements allow the institution to provide funding for students who might have used up other financial aid options. ISAs also put more responsibility on the school to help students succeed, so that graduates can begin paying back the borrowed money. This type of funding allows for financing that can help students stay in school and increase graduation rates through eliminating financial barriers. In addition, ISAs ease students’ transition into work after graduation by not requiring payment from a graduate unless the graduate makes a certain income. This allows graduates to live affordably while paying back their student debt with just a set percentage of their pay. These agreements could be a great alternative for student who have felt that traditional loans have put their education out of reach.

If you are considering entering into an ISA, your institution will need to prepare for this to make sure that not only do you have the appropriate accounting, but that you also have the right infrastructure to make this a success for the institution and the students.  This includes evaluating your aid awarding process, on-going retention efforts, career services and ensuring you are partnering with a service provider that can assist you in managing the portfolio.

ISAs can be an additional tool to assist with retention and attract new students if they are well planned and executed and your institution can invest the additional infrastructure needed.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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