RE: Income Share Agreements and the DFPIIncome Share Agreements • December 19th, 2021
Income share agreements (ISAs) provide borrowers, often students, an advance of money in exchange for a percentage share of the borrower’s future income. Despite their growing contribution to student debt in the United States,1 the majority of ISA providers and servicers maintain that ISAs are not loans or consumer credit and thus not subject to consumer loan regulation.2 Recently, however, law enforcement at the state and federal level have affirmed scholars’ and advocates’ assertion that ISAs are loans.3 In August 2021, the California Department of Financial Protection and Innovation (DFPI) made clear its intent to treat ISAs as loans. Two new pieces of California legislation, the California Consumer Financial Protection Law (CCFPL) and the Student Borrower Bill of Rights (SBBR), give the DFPI new rulemaking and enforcement authority to regulate consumer loans, including ISAs. This memo outlines how the DFPI and the California legislature can use their authorities to protect borrower
Income-Share Agreements on the Job Market: Debt Versus EquityIncome-Share Agreements • October 14th, 2019
Income-share agreements (ISAs) recently have been gaining traction as a way for students to finance college education, marketed as a way for students to reduce the down-side risk of winding up in a low-paying job with high student debt. Because ISA payments are a fraction of the on-the-job wage, incentives for both applicant and provider are differ- ent from a traditional debt-financed job applicant on the job market. I develop a labor-search model to show how financing affects job-market outcomes such as wages, search duration, and overall utility, set within an equilibrium framework where the terms and methods of financing are endogenous. I show that ISAs can constitute an important part of the college-financing decision for financially-disadvantaged potential college students, and can act well as a substitute for traditional debt-markets when the cost of college is neither very low nor very high.
