International evidence and implications of student take-up of income share agreements on U.S. higher education

Income Share Agreements (ISAs), often presented as “loan alternatives”, have the potential to address the student loan crisis and to provide protections to students’ income downside risks. Despite interest in implementing ISAs at the federal level and the growing number of ISA programs being offered, little is known about the role of ISAs in education or about moral hazard and adverse selection in ISAs. I use administrative data from an ISA provider in Colombia and Peru called Lumni, and I combine it with a survey of ISA Takers and ISA Non-Takers to shed light on the role that ISAs play in college persistence and on the factors that explain student selection into ISAs. The results of the survey indicate that 37% of the Takers took up ISAs because they did not have financial alternatives. If ISAs had not been available, 25% of these students would have not persisted, 12% would have studied at a cheaper institution, and nearly 1% would have studied a different major. Individuals who perceive that loans are riskier than ISAs, who are 25-29 years old, single, poor, and financially dependent on their parents are more likely to take-up ISAs. ISA Takers are more confident about their future salaries, but tend to have lower academic performance, consistent with the presence of adverse selection. Takers also value that ISA payments are tied to income, a feature of the contract that insures students against income risk, possibly enhancing their ability of freely choosing majors and institutions. Non-Takers perceive that ISAs are riskier than loans and dislike the conditions of the ISA contract. The results of this study inform design and policy evaluation of ISAs both in the US, where legislation has been introduced and ISA programs are proliferating, and in other countries considering new financing reforms in higher education.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Educ Policy, Orgzn & Leadrshp

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2019

Author dc:creator

• Soler Salazar, Maria Claudia

Contributors dc:contributor

• Bragg, Debra D.
• Zamani-Gallaher, Eboni M.
• Trent, William T.
• Pak, Yoon

• Income Share Agreements
• higher education financing
• student loan debt
• persistence
• college outcome
• risk attitudes
• adverse selection
• credit constraints.

Statement dc:rights

• Copyright 2019 Maria Claudia Soler Salazar

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/105055

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/105055