Income Share Agreements: An Old Idea Made New, But Necessity to Protect Students Remains

Postsecondary & Workforce

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In 2014, I gave my first state legislative testimony in Maine on an idea that would turn tuition and financial aid on its head: Pay It Forward, Pay It Back. Under the model, students in postsecondary education pay no tuition at the time of enrollment, and instead, repay a percentage of their earnings for a pre-defined amount of time. The money is not considered a loan — there is no principal to repay — but it is also not a pure grant. Students, and the states backing the Pay It Forward funding, place their bets and hope that the fund will become self-sustaining — with repayments coming in to cover the disbursements made to new students.

Twenty-four states considered 35 pieces of legislation related to Pay It Forward in the 2014 legislative session. The idea spread quickly: Seventeen states indicated an interest in studying the feasibility of the model, seven states considered a pilot and four states considered legislation that would have created a full-blown program.

Oregon carried out the most in-depth analysis of the idea, concluding that it would cost over $56 million to fund a 4,000-student pilot. The program could become self-sustaining — meaning the repayments would be sufficient to make new disbursements to students — in about a quarter of a century. In the end, the high price tag and extended time horizon were effective nails in the coffin of Pay it Forward.

The idea has rebounded, however, in the form of the Income Share Agreement, or ISA. Generally developing at the institutional level, and backed by private capital as opposed to state dollars, these agreements operate in much the same way as the Pay It Forward proposals. Notable examples include the Back a Boiler program at Purdue and Colorado Mountain College’s version for DACA-enrolled students, called Fund Sueños.

In addition to institutional-level action, six states — California, Georgia, New Jersey, New York, North Carolina and Pennsylvania — considered seven pieces of legislation related to ISAs in the 2018 legislative session. Five of these bills failed to progress out of committee, while bills in New Jersey and Pennsylvania are currently pending.

While the name has changed, many of the challenges of implementing an ISA model at the state level remain the same. States should consider ways that legislation can support the creation of fair, equitable ISAs that will serve students and funders well. This may include addressing state usury laws, the percentage of income that can be assessed or limits on the repayment timeframe. Whether publicly or privately funded, state law has a role to play in protecting students as they seek support to complete a postsecondary education.

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Senior Policy Analyst at Education Commission of the States |

Sarah supports the research and analytical capacity of the policy team in her role as a senior policy analyst at Education Commission of the States. Sarah has extensive experience in student financial aid programs, and is frequently called upon as an expert in state financial aid policy and practice. A recipient of state aid herself, Sarah believes that state policy leaders have a key role to play in ensuring affordable postsecondary opportunities for students from all backgrounds.

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