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The future of education finance
Nov 5, 2018
Do Income Share Agreements Increase School Applications?
Despite the intense policy interest surrounding income-based financing for higher education, there has been little to no causal investigation into whether these solutions actually increase participation in educational programs. Most income-based financing is broadly simple. Students receive value, either through funds or educational services, and in return they pay a defined percentage of income until their contract is finished. In income-contingent loans, there is an attached interest rate and a defined debt obligation amount. Income share agreements, on the other hand, may define the percentage and number of years of the contract and leave out everything else. Empirical observations about these contracts from natural occurring data are generally in the affirmative: they do increase participation. Australia saw nearly a 70% increase in participation in higher education following their switch to income-based financing as the sole financing option, for example. Participation has risen in most countries where income-based financing has been introduced. Without randomization, however, it is impossible to rule out other factors for these increases. To our knowledge, not even instrumental randomization methods as employed in econometric analysis have been used studying the participation effects of income-based financing, and specifically income share agreements. We know of one attempt at a randomized controlled trial for the participation effects of income share agreements but it was survey-based and in a classroom. Hypothetical choices are helpful but potentially misleading.