There has been an urgent need to reimagine and rebuild our current systems of education and training. For years, Americans have been taking big risks to pursue postsecondary education and accumulating massive debt with no guarantees of employment prospects. We believe that reforming our system of postsecondary education and training—including the way we finance such education—is one of the keys to our nation’s economic recovery and resilience.
Over the last five years, income share agreements (ISAs) have emerged as an option for students to finance education and training. Unlike a traditional loan, students pay a fixed percentage of their income over a defined period, and students earning below a specified threshold make no payment. Over 40 U.S. colleges and universities and numerous alternative training providers have offered ISAs to finance education, and new programs are continuing to emerge. This developmental stage opens the opportunity for these institutions to guide the design of ISAs toward a student-centric framework.
These findings and recommendations are illustrated in a new issue brief by the Aspen Institute, which explores how ISAs can be designed and operated to improve economic mobility and opportunity for American workers. The Aspen Institute Future of Work Initiative conducted nearly 40 formal interviews with stakeholders across the ISA landscape, including nonprofit, for-profit, and workforce ISA providers; impact investors; philanthropic organizations; consumer protection advocates; workforce experts; and higher education policy experts. The Initiative then organized a working group of practitioners and policy professionals to discuss policy guardrails and student-centered ISA principles. As a partner of the Aspen Institute, Social Finance was grateful to participate in the working group to develop the report.
Below are some of the key policy guidance and principles highlighted in the brief:
Summary of Policy Guidance & Principles for Student-Centered ISAs
Guidance to Policymakers
Strong policy guardrails around the design and operation of ISAs can help ensure that students are better protected, and that ISAs align with their interests.
- Ensure existing federal and state consumer credit protections are appropriately applied to ISAs
- Consider new protections uniquely designed for ISAs
Principles for Providers
Principles can help ISA providers, as well as investors and philanthropic organizations that work with providers, understand how to design and operate ISAs to protect and center students’ interests.
- ISA providers should ensure students understand what they are signing up for
- ISA providers should design ISAs so that all students can make payments and afford basic living costs
- ISA providers and their investors should bear most of the risk of poor economic outcomes
- ISA schools should provide information on education and employment programs outcomes to the public
- ISA providers should work to reduce existing racial and gender disparities
- ISA providers should carefully choose their investors and design their financial arrangements to avoid undermining the alignment between the provider’s financial incentives and students’ performance
- ISA providers should encourage students to explore all available federal financial aid options prior to entering into ISA contracts
- ISA providers should collect and consider student and former student input when designing and improving ISA terms
- ISA providers should strive to be consistent with existing federal and state laws governing traditional loans
In 2019, Social Finance launched the Career Impact Bond, a financing model that expands access to quality, industry-recognized career training to people who face barriers to education and employment like low income, criminal justice involvement, and immigration status. The model is based on a student-centered ISA that allows students to enroll in training with no upfront costs. All project partners commit to a student-centered approach to delivering education and training to create successful outcomes for students, governed by a Student Bill of Rights.