How Income Share Agreements May Affect Financial Aid

By Mandy Sponholtz, Policy & Federal Relations Staff

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:

  1. "Institutional compliance with federal rules governing aid packaging—and the wise use of financial aid funds—is substantially complicated when financial aid officers are not aware of all the ways in which a student is financing his or her education.
  2. The challenge this presents to financial aid officers who would otherwise facilitate conversations with students and families about how to understand an ISA relative to a grant or education loan.”

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

Theodore M | 12/8/2015 8:34:56 AM

I found that many of the AIR examples were not very realistic. At Purdue, we are working on having an ISA program in which the University is involved with the process and has limits on the terms and conditions of the agreement.

Will the ISA be better than private or PLUS loans? It is hard to tell. It is our intention for the ISA not to replace Federal Direct Stafford Loans.

Perhaps a NASFAA Task Force should look at this if they become fairly common.

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