The American Institutes for Research (AIR) recently published a brief discussing the practical aspects of how Income Share Agreements (ISA) may affect students’ financial aid packages and how schools may account for these funds in required annual reporting to the U.S. Department of Education (ED). ISAs are an emerging form of higher education funding through which a student receives funding up-front from an outside investor, and agrees to pay that investor a portion of his or her income for a specified period of time.
Currently, no statutory, regulatory, or subregulatory guidance exist directing schools on how to deal with ISAs. The brief identifies two problems with this lack of guidance:
ED has no plans to issue formal guidance in the near future due to the lack of actual examples and questions from the financial aid community. More robust use of ISAs may be forthcoming, however, as Purdue University recently signed a letter of intent to further research the value and benefits of using ISAs on campus.
NASFAA assisted with the brief by asking members of the Rapid Response Network about their experience with ISAs and how they would account for such funds in a student’s aid package and reporting to ED. Based on their responses, most financial aid administrators would count an ISA award as estimated financial assistance in a student’s aid package and report an ISA as a private loan to ED. The brief provides examples outlining how an ISA award may affect a student’s Title IV aid package.
Unlike many private loans, ISAs do not require school certification, which raised concerns among the aid administrators. Knowledge of ISAs and their terms could help aid administrators counsel students to make informed decisions because in some cases, an ISA would end up costing more than a student loan.
Even though most financial aid administrators acknowledge that ISAs are not private loans, there is no other relevant category in which to report such funding via IPEDS. The brief acknowledges that as ISAs grow in popularity, there will be a need for separate reporting to accurately account for such funds.
This AIR brief is the second is a series examining ISAs, which are geared toward providing information and discussion points for students, schools and policymakers.
Publication Date: 12/8/2015