Common Contracts
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Student Selection into an Income Share AgreementSeptember 3rd, 2019
Financing college expenses through an income share agreement (ISA) is an arrange- ment where the student agrees to pay a fixed percentage of his or her future earned income for a fixed period of time. Using Purdue University administrative and survey data for 442 ISA participants and 418 non-participants who applied and were offered an ISA but chose an alternative source of college funding, I estimate the adverse se- lection into the ISA and the moral hazard caused by the ISA. The identification of selection into the ISA is based on being able to observe the full set of interested and eligible students due to the way ISA terms were provided. The evidence suggests that there is no adverse selection by student ability, demographics, and a variety of other student characteristics. The evidence that selection into the ISA is not correlated with the observables motivates the identification strategy for estimating the effect of ISA participation on grades earned and starting salary after gra
