Can Income Share Agreements End The Student Debt Argument?

One of the major issues in the 2016 presidential campaign is the quickly rising costs of earning a university degree. Student debt figures are staggering, and many are concerned that the bubble is about to burst as loan repayments are becoming more and more impossible for American graduates.

One solution that has gained some traction in recent months has been income share agreements. The agreements give investors a chance to bet on a student's career, and give students the flexibility to pay back their loan only if and when they are earning. However, several issues with the income share model may keep it from becoming a popular way to fund higher education.

What Is Income Sharing?

Students who are unable to take out a loan or simply don't want to carry around a debt burden can opt instead for an income share agreement. Instead of owing a set amount at the end of their college career, students agree to pay a percentage of their wages for a set period once they've graduated. That way, students who are unable to secure a job or are being paid minimum wage aren't responsible for paying off a massive loan.

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What's The Catch?

In order for this model to be successful, investors need to get a reasonable return on their investment. That means students are often paying off more than double what they borrowed, especially if they have a well-paying job.

The catch is that most dedicated students who expect to finish school and get a high paying job will opt for traditional loans, as they will feel more confident about paying them off. Students who are unsure about their job prospects after graduation are more likely to choose an income share agreement.

However, such students aren't ideal investments as the agreed upon percentage of their wages may not yield much interest, or they may not pay the loan back at all.

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