March 4, 2014
With an ISA, an investor or other organization provides a student with financing for higher education in exchange for a percentage of the student’s future income for a defined period of time after the student finishes school. Unlike a loan, there is no principal balance to repay with an ISA. Depending on the level of the student’s success after school, the student may ultimately pay more or less than the amount financed. This instrument for the private financing of higher education is not currently a full substitute for federal student aid programs, but it can help correct some of the existing system’s shortcomings and improve student outcomes.
Authors Miguel Palacios, Andrew Kelly and Tonio De Sorrento of AEI clearly outline why they believe ISAs are better suited for student financing than traditional student loans in their article, and what steps policymakers should take to facilitate the growth of ISAs. Please read and let me know what you think about ISAs’ potential in the comment section below.