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Support for Income-Share Agreements Over Loans

January 27, 2017
 
 

When provided with specific information on what their monthly payments would be, more than half of students and parents in a national survey said they would prefer using an income-share agreement to traditional student loans for financing a college education, according to an American Enterprise Institute report released Thursday.

AEI commissioned the survey to learn more about attitudes toward alternative financial products for borrowers who would otherwise take out student loans.

Income-share agreements would require that students pay a percentage of their income for a set number of years. That arrangement contrasts with student loans, which borrowers pay back in fixed monthly amounts no matter their income. The federal government has steered a growing number of student loan borrowers toward income-driven repayment plans in recent years. But borrowers still accrue interest they must pay back under those plans. ISAs would not charge interest.

Income-share agreements wouldn't be without risk for borrowers. Whereas student loans can become burdensome for borrowers who do not earn enough to make their monthly payments, students who take out ISAs could end up paying more than they borrowed if they earn a higher income.

AEI surveyed 400 college and high school students and 400 parents of current and future college students. The results of the survey did not reveal that income or other factors predicted whether someone was more likely to favor an ISA over a student loan. More respondents were inclined to prefer the income-share agreements to student loans after receiving information about what they would pay each month in various income brackets. Financial products like ISAs are receiving more focus from policy analysts interested in what would happen if the federal government were to scale back its role in student lending.

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