Chris Scazzero: Income Share Agreements and their EA Implications
Chris Scazzero, cscazzero@college.harvard.edu
In 2016, Purdue University’s office of financial aid first introduced ISAs, or Income Share Agreements, for its students. Several more universities have recently followed suit. Indeed, ISAs are a fascinating financial mechanism often allowing for students to pay back their student loans with significantly less interest. This is because they aren’t quite loans, but rather are more like a kind of stock: human stock, with dividends. So, rather than paying interest on the debt, students pay their loans by guaranteeing somewhere between 2-17% of their short-term future income. If a student succeeds materially beyond imagination, there is usually a repayment cap amounting to about 2.5 times the initial funding. Under this system, about $40 million of loans have been distributed, helping several thousand American students afford their universities.
Is this a good thing for American students? Well, in typical EA style the answer is we don’t know until greater empirical data is released. Since this is a relatively new concept, we don’t have any real studies proving or invalidating its success. However, in concept, this is a very exciting idea. First, it shifts the risks of debt from the hands of college students into investors, who can pool their risk and have larger capital reserves. Second, it spurs meritocracy and social mobility, since anyone has access to this capital and the best rates of repayment will be given to those who have the highest prospects of success. Positive values, like hard work and passion, have tangible financial benefits associated with them. Finally, and perhaps most importantly, it means that investors, often considered a part of the most connected, informed members of society, now have a financial incentive to benefit those who need it. If they were to treat these college students like their own children, providing oversight, check-ins, and even networking advantages, then the students would earn more money in the future, and the investor would thus earn a greater return. Indeed, there is a deontological problem with this, treating humans like stock and trading them based off their projected human value. It seems to ignore their dignity. Yet, utilitarians would argue that this is the way to preserve the most human dignity, since it spurs greater social mobility resulting in the best outcome for everyone.
This is promising in and of itself, yet it seems to hold even more promise in the third world. If one thinks of human potential as financially significant for investors, then undoubtedly investors should and will turn their heads towards the most underdeveloped areas of the world; it is in these places where people with the intellect to become lawyers, doctors, etc. work on farms and in factories. Providing for their education (which would often be more of a practical, trade-school rather than a western liberal arts school) and basic needs could lead to tremendous financial returns. For once, it seems that corporate and general human interests could align. Once again, this is perhaps taking away from the freedom of global citizens to pursue their interests. For example, investors will not fund an artist to the same degree they would a potential banker. But, that being said, one cannot even imagine the tremendous impact such investment strategies can have: with the power of corporate investment, millions of people could be lifted from poverty.