What Research Reveals About ISA Provider Behaviors

Income share agreements (ISA) are a relatively new method of financing postsecondary education, but until recently, little research had been done to provide a better understanding of how they work and the impact they can have on students and the education financing market in general. In the past year, however, a significant number of research reports have been published that have shed light on this uncommon financial product.  

In a September 2023 blog post, Jobs for the Future’s Financing the Future team summarized available research regarding the size and shape of the ISA market. This post examines research on how ISA providers behave and how those behaviors affect student experiences. Understanding student experiences allows ISA researchers, advocates, and investors to better evaluate and support good practices. It also gives ISA providers insights that they can use to improve their offerings, and provides policymakers with information that they can use to craft legislation that centers student needs. 

Key Takeaways: 

1. The way that providers frame income share agreements makes a notable difference in how interested students are in using this financial product, with messaging that positions ISAs as “education insurance” being particularly appealing.  
2. Students are often unable to fully understand ISAs because providers often don’t publicly offer sufficient information about contract terms. 
3. ISAs are complex and not well known, making it difficult to effectively promote and explain them to students in marketing and disclosure materials. 
4. Providers use a wide variety of wordings and phrases to describe ISAs, which can contribute to students’ misunderstanding of the nature and financial implications of the model.

The Research  

This blog discusses insights revealed in these four sources of ISA research: 

• RAND: “Income Share Agreements: Market Structure, Communication, and Equity Implications of a Student Loan Alternative”  

This report evaluates the structure, communication styles, and equity implications of the ISA market. It sheds light on the size and shape of the ISA market through an evaluation of 160 programs in the United States. RAND used publicly available information on ISAs from provider websites and public data from the Integrated Postsecondary Education Data System to analyze the ISA market.  

• JFF and Confero: ISA Market Research  

In 2023, Jobs for the Future (JFF) worked with Confero, a mystery shopping company, to learn about ISA providers’ contract terms and attitudes toward students. Posing as potential student borrowers, Confero mystery shoppers attempted to contact 27 ISA providers. They successfully reached 16 providers (all non-Title IV) and asked questions about the nature of the ISA offerings and the terms of their contracts. 

• University of Utah: “Income Share Agreements: Invest in U”  

This report examines the University of Utah’s pilot ISA program, Invest in U, which was started in 2019. Researchers interviewed University of Utah leaders and analyzed data on student outcomes, participation, and perceptions to understand ISA participant outcomes and the university’s experience creating its ISA program. 

• Federal Reserve Bank of Philadelphia: “Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection”   

This research paper details an experiment conducted in which researchers and a large nonprofit university offered students a hypothetical ISA. The research aimed to discover if the way universities frame ISAs influences students. Researchers found that framing ISAs as education insurance increased the likelihood that students would be interested in signing up for an ISA.  

How ISAs Are Framed to Borrowers Makes a Difference 

The way providers frame ISAs when engaging with potential borrowers plays a big role in determining whether students will be interested in using ISAs to finance their educations. The nature of the provider messaging also plays a role in determining what kind of students choose ISAs. 

An upcoming report from the Federal Reserve Bank of Philadelphia explores the impact of framing in detail.  

ISAs have a built-in insurance feature that allows students whose post-education earnings are low to make lower monthly payments, and possibly to pay nothing at all if their earnings are very low. The Philadelphia Fed research aimed to determine whether students valued this insurance feature and how their awareness of it might change their willingness to use an ISA to finance their educations. As part of this project, the researchers partnered with a nonprofit university to offer students two hypothetical funding options: an ISA and an income-driven federal student loan, with the goal of determining the impact of framing ISAs as “education insurance.” The researchers found that, when students were told that an ISA was education insurance that could help protect them if they earned low wages after their education ended, they were strongly interested in the feature, increasing the likelihood that they would sign up for the ISA by 10 percentage points.  

“When students were told that an ISA was education insurance that could help protect them if they earned low wages after their education ended, they were strongly interested in the feature.” 

That finding is consistent with the results of prior research, including a study led by University of Maryland economist Katharine G. Abraham, which found that when insurance aspects were emphasized, the likelihood of students choosing income-driven models rose by about 18 percentage points. 

The Philadelphia Fed researchers also were surprised to find less evidence of adverse selection (in which students who have higher future incomes are less likely to take up ISAs than students with lower future incomes) than they had anticipated. This is important because an ISA fund could become unsustainable if insurance framing leads students who expect low future incomes to use ISAs at higher rates than other students. The researchers did find that, regardless of framing, students who were very uncertain about having high future incomes may be more attracted to ISAs than other students, but that students who were very uncertain about their future employment were not more or less interested in ISAs than others. Current income and employment status, as well as other factors—including housing insecurity, family health risks, and current work-related risks or responsibilities—that might be predictive of lower future income also appeared to have no impact on ISA uptake. 

Lack of Adequate and Clear Information on Contract Terms 

The research projects conducted by RAND, the University of Utah, and Confero all found that many ISA-offering institutions don’t provide adequate and clear information about the contract terms of the ISAs they offer.  

This is important for two reasons. First, many students, and especially those attending Title IV institutions (those that process U.S. federal student aid), have multiple financing options, and they must be able to compare them to make good decisions. Second, ISAs can be either very student-friendly or very predatory—or something in between—and students must be able to see and understand the details of the contract terms to know what they’re dealing with. At a minimum, contracts must include three key elements for students to make informed decisions about taking out an ISA: the income share (the percentage of income due as payment each month), the earnings threshold (the income level below which a student doesn’t need to make a payment), and the repayment period (the length of the repayment obligation in months, years, or payments).  

According to the RAND research, about half of institutions that offer ISAs don’t publicly provide those three pieces of information. Non-title IV institutions (including many training programs and boot camps) were more likely to provide this information than Title IV institutions (including many two- and four-year universities). But only half of non-Title IV institutions provided all three publicly, compared to one-third of Title IV institutions. The earnings threshold was the term most commonly provided publicly by both types of institutions; it was in 70% of non-Title IV institutions’ public documents and in 47% of Title IV institutions’ public documents.   

Confero mystery shoppers discovered similar results when trying to find information about those three terms from ISA providers. When shoppers were able to contact providers, many of the providers’ representatives were unable to help them understand the information needed to make an informed decision about education financing options. Only about 19% of providers were willing to reveal a specific income share or earnings threshold, and just 25% of them mentioned a specific repayment period. Other providers either didn’t mention the key terms at all or only mentioned them in passing without providing specifics. The shoppers were unable to get any response from 40% of the providers they contacted. 

These findings show that many ISA providers don’t provide enough key information for students to fully understand the terms of the financial product they’re considering. Having publicly available contract terms is essential for borrowers. If students don’t have unambiguous information about the key terms of education financing products, they can’t make informed decisions about whether to take out an ISA—or any other kind of financing option they might choose. And as the Philadelphia Fed research shows, these contract terms can factor into student decisions: Some students were interested in selecting a different financing option if specific information about the income share and repayment period were changed.  

Low Public Awareness Creates Marketing Challenges  

Even if providers were to publicly present adequate information about ISA contract terms, low public awareness of this financing model makes it difficult to ensure that students understand what their options are. In a nationwide survey of 2,463 people, RAND researchers found that there is a very low public awareness of ISAs, with only around one in five survey respondents saying they had heard of them. RAND’s survey also indicates that even fewer people have firsthand experience with ISAs: Only about 1% of the respondents said they had used the model.  

Financial aid models—even federal student loans—are already difficult to understand for many students (and financial literacy is often lower among students from low-income backgrounds).  

In its research, the University of Utah found that extra care must be taken to educate students and families about ISAs because they’re such a novel form of student financing. However, even financial aid counselors at the school had difficulty understanding the Invest in U ISA and were unsure whether to refer to ISAs as loans. To address that issue, the university tried to ensure that students had transparent and consistent communications about the ISA program. However, during the University of Utah’s pilot ISA program, school officials found that even when they disseminated marketing materials that provided what they felt was good, clear information about ISAs, there was still a lack of student knowledge about the Invest in U ISA program. 

Are ISAs Loans? Providers Are Unclear 

In the United States, there’s no standard definition of an ISA, adding to the difficulty of marketing them. For example, some providers refer to ISAs as loans, some explicitly say ISAs are not loans, and still others refer to ISAs as something else entirely—or use multiple phrases to describe them.  

The RAND research found that most provider documents indicate that ISAs are “distinct from a traditional loan.” That was true of the University of Utah. It used various descriptive phrases—including “an additional tool to fill funding gaps” and a “flexible funding option based on future salary”—to clarify that its ISA is not the same as a loan. However, the university did acknowledge that ISAs are like loans in one respect: They both can create financial burdens for borrowers.  

In conversations with ISA providers, Confero shoppers found that 28.5% of provider representatives either didn’t use the word loan to describe their ISAs or explicitly said their ISAs are not loans. However, another 28.5% of the provider reps did use the word loan to describe their ISAs, and 7% sometimes used the word loan and sometimes did not. The remaining 36% didn’t discuss ISAs. 

The lack of standard terminology to describe ISAs creates confusion for students, making it difficult for them to understand what an ISA is and what type of financial burden an ISA can create.   

Transparency Is Essential 

While tuition costs and student loan debt burdens have grown, many schools are failing to produce positive economic returns on students’ investments. ISAs offer the potential to improve accountability, access, affordability, and equity in the postsecondary education and training system. 

However, reaching this potential is contingent on a variety of factors, including ensuring that students can act as informed consumers and understand what they are signing up for. Absent that understanding, students may make financial decisions that don’t serve their interests, and they would be vulnerable to poorly designed and/or predatory ISAs. This risk falls disproportionately on students underserved by current systems, including people of color and first-generation postsecondary students. Members of both of those groups are likely to be in greater need of financing than others, and their family and social networks may not include people with firsthand experience who would be able to offer advice. In fact, the University of Utah found that many students who used its ISA either came from low-income backgrounds or already had high levels of student loan debt—or both. 

Individual ISA providers should be more transparent about the details of their financial offerings, and they could start by making useful information publicly available on their websites. Among other things, they could publish clear explanations of the key terms of their contracts, with details about how those terms could impact monthly and total payments. They could also post sample contracts and financial disclosure documents so that students can read the fine print before making a decision. 

Providers should also collectively establish a common language to describe ISAs. That would help ensure that students and their families have a better understanding of this novel financing option, and it would put the providers in a better position to comply with the regulations governing ISAs (which are admittedly ambiguous, though recent developments have improved clarity). 

The studies we review in this blog help answer questions about how ISAs can affect students, and they offer insights that can lay the groundwork for strategies to ensure that ISAs are student- and equity-centered. But more research is needed. Key areas of inquiry should include adverse selection, student preferences and satisfaction levels, the effects of incentive alignment, effective language to use in marketing materials and legal disclosures, whether students would be more likely to take financial risks if they finance their educations with ISAs instead of loans, and how regulatory uncertainty and imprecise data impact the cost of ISAs. 

ISAs hold great promise, but providers must embrace best practices (both individually and collectively) and researchers must expand their exploration of ISAs and other forms of income-contingent financing. Doing so will allow the promise of ISAs to become a reality.