A new discussion paper from the Consumer Finance Institute of the Federal Reserve Bank of Philadelphia analyzes the nascent marketplace for income-share agreements in postsecondary education.
Under such agreements, students agree to pay a certain percentage of their future incomes over a set period of time in exchange for funding of their educational program expenses.
More than 40 colleges and universities, as well as many alternative providers, currently offer ISAs, wrote the report's co-authors, Dubravka Ritter, a senior research fellow at the institute, and Doug Webber, an associate professor of economics at Temple University.
"As economists who have dedicated much of our professional careers to studying optimal financial aid systems, we find the complexities, incentives, promises and potential pitfalls associated with ISAs to be fascinating both on a practical and an intellectual level," they wrote.
The report looks at how ISAs are structured and funded; what the theoretical costs and benefits are to students, institutions and funders; and the main practical challenges such arrangements pose.