As an alternative to Federal Plus and private student loans, more students are looking to income share agreements as a way to fund higher education.
In an income share agreement, an investor essentially fronts a student’s college tuition under the condition that when the student graduates and begins working, they will surrender a portion of their future income for a given period of time.
Last year, Purdue University was the first major research university in the U.S. to offer an income share agreement to its students, The Greensburg Daily News reported.
The Purdue Research Foundation’s Back a Boiler-ISA Fund program distributed a little over $2 million to approximately 160 juniors and seniors this year and recently announced it will expand the program to all rising sophomores, juniors and seniors.
“Our goal for the first year was to offer Back a Boiler to students who planned to borrow through private and Parent Plus loans, in addition to any public-subsidized loans,” Brian Edelman, chief operating officer of the Purdue Research Foundation, explained. “Although Purdue’s graduates with debt carry a lower amount than the national average, any debt is a concern. We wanted to offer an option to reduce that interest-bearing debt, and I believe we have that with this program.”
The alternative financing option’s payback period is about 10 years, but the ISA has no principal balance or interest, and the payments are adjusted based on the borrower’s income over the life of the contract.
“We have great confidence in the program, and many of the questions we received were really requests to expand the program to include more students,” said Edelman. “That is what we are doing.”