So far StepEx is the only firm to operate as a regulated ISA provider, underwriting the credit with funds from large UK financial institutions.
In the American system, this usually involves the investor transferring funds to an individual in exchange for a fixed percentage of their future income.
[2] Milton Friedman originally proposed the concept in 1955, in his essay "The Role of Government in Education", in which he argued that students might beneficially be funded through an "equity investment" such that:[4] [Investors] could "buy" a share in an individual’s earning prospects: to advance him the funds needed to finance his training on condition that he agree to pay the lender a specified fraction of his future earnings.
However, unlike the income share agreement model, Pay It Forward would be publicly funded, and it would offer fixed percentage repayments across all institutions.
[6] Public debate over the Oregon plan led to renewed interest in equity-based funding models, including a prominent summit on income share agreements at the New America Foundation[7] and a policy paper from the American Enterprise Institute.
[1][8][needs update] In the United States today, ISAs are offered by some universities and by some skills training programs, such as coding boot camps.
[9] Proponents of ISAs argue that they provide significant benefits over existing models of college financing: Efficient allocation of resources Since investors have an incentive to allow students to pay lower shares of their income when they enroll in high quality, low-cost educational programs, ISAs lead to a more efficient allocation of financial resources between colleges.
[2] Insurance and downside protection ISAs reduce risk for students,[8] and therefore act as an insurance policy for graduates with low earnings: [With an ordinary student loan] my nominal monthly payment is fixed but my income could change or go away altogether (making certainty just a monthly repetition of bad news).
With an income share agreement the converse is true: I don’t know what my nominal monthly payment will be over the entire term, or how much I will pay overall, but I do know that I will always be able to afford it.
[10]This is a non-trivial benefit, since we know, based on current studies that student loans can impact both short-term career outcomes and long term wealth.
[11] For instance, recent articles indicate that student loans make it difficult for individuals to participate in the stock market to build long term wealth: "My money is spent servicing student loans," said Marcus Wallace, a 25-year-old waiter in Washington, D.C. Until that debt is reduced, he explained, the great stock market bull run will have to go on without him.
For instance, Kevin Roose wrote in New York magazine that ISA companies give "young people in the post-crash economy the chance to indenture themselves to patrons in the investor class.