Income Share Agreement Moral Hazard

In an environment where the educational debt in the United States has increased to $1.5 trillion, it is not difficult to understand why students are looking for alternatives. But are income-participation agreements the answer? There are two main types of income-participation agreements. In the first, the agreement aims to make up for the difference after a student has taken out state-subsidized credits. In the other, the agreement funds the entire training of the student. In both approaches, the student begins to reimburse the school as soon as he leaves, although some programs offer additional time before payments are due. There is no current legal framework for income participation agreements, which means that each school implements a single program with its own terms. There are reports that legislators are working on the definition of legal standards, but for now, each of these contracts is the same. Since the agreements are not regulated at the federal level, students must carefully consider the percentage of future income they will owe, the period during which the agreement will be implemented, and whether there is a cap on total payments. These terms are very different. The percentage of income can go less. B from 1% to about 15% depending on the program, depending on the program. Some programs can go up to 18%, according to Julie Margetta Morgan, a collaborator at the Roosevelt Institute.

Repayment times range from two to ten years. Next: Susan Dynarski on income-based credits. Income-participation agreements remain rare, although they are becoming more frequent. Before they grow up too fast, it`s worth asking if they are a real solution to our educational debt problem, or a new problem that is hidden. One of them is Blair, a start-up of the Y Combinator Fund that brings students together and pays up to $50,000 for their education or cost of living. Students will repay it over a period of about six years as a proportion of their income, with the total amount never exceeding 2.5 times the original amount. Blair says that based on historical data, investors can expect a return of 10% per year, while repayments are reduced by 2%. If you are considering an income-participation agreement for yourself or your child, please contact us with caution.