It's yet to be seen if income-share agreements (ISAs) will take off as a more popular way of financing a higher education, but students and parents appear to be interested in the method as an alternative to student loans, according to a new report from the American Enterprise Institute (AEI).
The report, the fourth in a series examining the viability of ISAs and perspectives on the model, is based on a nationally representative survey of 400 college and high school students, and 400 parents of current and future college students. In a report on the survey, Jason Delisle, a resident fellow at AEI, wrote that while few respondents had initially heard of an ISA, more than half said they preferred ISAs over loans when given more information. Still, Delisle wrote, the survey did not give enough information to predict whether someone (based on factors such as income groups or school types) would favor an ISA over a student loan.
“As anxieties over college costs have grown in recent years and students and families increasingly worry whether their investment in higher education will pay off, ISAs begin to look like an appealing alternative to borrowing,” the report said.
Previous reports on income-share agreements from AEI have focused on student and parent perspectives in assessing the upside and downside risks of choosing an ISA over a private loan, discussing three potential models as viable options, and how private financing could foster innovation.
While state and federal policymakers have shown interest in ISAs, and some individual institutions are experimenting with the financing model, there’s still a long road ahead before the financing model could become widespread.
In AEI’s latest report, Delisle writes that just 7 percent of students and 5 percent of parents had heard of an ISA. However, it appeared that the more information respondents received about ISAs, the more favorably they responded. The favorable responses began at a low of 23 percent with limited information, to more than half with more detailed information. Still a large portion remained “uncertain or confused” about ISAs.
“If policymakers look to reduce the federal government’s role in student lending in years to come – or opt not to increase borrowing limits over time, eroding the purchasing power of federal loans – then the need for additional sources of private financing will only grow,” the report said. “In the meantime, this first major survey about attitudes toward ISAs demonstrates that there is enough interest among parents and students to support an ISA market that is much larger than the one that exists today.”
Publication Date: 1/26/2017