FINANCING THE FUTURE: THE EMERGING ROLE OF INCOME SHARE AGREEMENTS IN HIGHER EDUCATION Lauren Marie Schachar A DISSERTATION in Higher Education Management Presented to the Faculties of the University of Pennsylvania in Partial Fulfillment of the Requirements for the Degree of Doctor of Education 2019 Supervisor of Dissertation: ______________________________________ Joni Finney, Professor of Practice of Education Dean, Graduate School of Education: ______________________________________ Pamela L. Grossman, Dean and Professor Dissertation Committee: Joni Finney, Professor of Practice of Education Manuel S. González Canché, Associate Professor of Education Jason Presley, Senior Fellow FINANCING THE FUTURE: THE EMERGING ROLE OF INCOME SHARE AGREEMENTS IN HIGHER EDUCATION © 2019 LAUREN M. SCHACHAR DEDICATION To my incredible family, who have been a constant support during this journey, and to Ira who was always by my side with unwavering encouragement, patience, and love. iii ACKNOWLEDGMENTS In reflecting back on all of the individuals who helped make this work possible, I feel a tremendous amount of love and gratitude. Without you, this journey truly would not have been conceivable. You showed up in your own ways, and it was always what was needed in that moment. I am forever grateful. To my team and colleagues, particularly Steven and Sari, thank you for being supportive and flexible, especially when I was away for cohort weekends or research site visits. You showed true compassion and understanding. Also to Dena, thank you for inspiring me to apply for this program. To the participants of this study, especially those who helped coordinate my site visits, thank you for taking time away from your daily lives to help make this study a reality. Without your interviews, email exchanges, phone calls, etc., this would not have been achievable. I hope one day I am able to pay it forward. To Joni, I have said it all along—I feel fortunate and lucky that you were my chair and role model. You set high expectations from the beginning, and I always felt like you were rooting for me to succeed. Your investment in this process has been so evident, and for that I am truly grateful. Thank you for everything. To the other members of my dissertation committee—Drs. Manuel González Canché and Jason Presley. Thank you for adding to the richness of this research experience and dissertation writing process. Your feedback and guidance have been invaluable. iv To Dream Team C17, our cohort was the best part of the whole experience. You all have become some of my closest friends and I cherish the memories—from week one on the bus to Bob’s house when we bonded over karaoke to our international trip to late nights at New Deck and our hilarious messaging. I will miss our tight-knit group. Thank you for the good times, life advice, and humor. To Angela, Ashish, Matt, Michael, and Ruchi—the tribe within the tribe, and forever and always Table Peeps. Thank you for being goofy, fun, silly, and always down for anything. You all inspire me professionally and personally, and I am grateful for our friendship. To Ron, Kathy and the Schachar siblings, it sure has been quite the year for the Schachar family. Thank you for the nonstop love and encouragement, and for believing so deeply in the value of education. I sure did score in the in-law department. To my friends, George is done! For those of you who know this odd reference to someone named George, I love you. Thank you for all the late-night calls, encouraging cards, messages, and phone calls, and for the many coffee gift cards that you knew this gal needed. Most importantly, thank you for never giving up on me and for understanding when I had to miss things. To Mom, Dad, and Keith. Thank you for always being a telephone call away when I needed a distraction, and then for always, always reminding me to get back to my homework once we had talked for too long. Parents, you taught me to dream big and believe in my own strength. I am grateful that you nurtured and encouraged my independence and never stifled my creativity. v Finally, to Ira, this brief paragraph will not capture all the words I could say about how thankful I am for you. More than anyone else, you know what it took to get to this point. You were the one who encouraged me to apply for this program in the first place, and often believed in me more than I believed in myself. Thank you for your unwavering support. I am hopeful that these acknowledgements express my heartfelt appreciation. vi ABSTRACT FINANCING THE FUTURE: THE EMERGING ROLE OF INCOME SHARE AGREEMENTS IN HIGHER EDUCATION Lauren Schachar Joni Finney With student debt exceeding $1.5 trillion in 2018, institutions of higher education face increased pressure to improve college affordability. In response, a small but growing number of institutions have implemented income share agreements (ISAs) as an alternative way to help students pay for all, or a portion of, their college tuition. In an ISA arrangement, the student receives tuition funds in exchange for an agreed-upon percentage of their postgraduate income for a pre-specified length of time. Ideally, this model creates a link between postgraduate student performance and college or university tuition reimbursement. Although the concept of ISAs is relatively straightforward, implementation can vary widely based on how the ISA is constructed. Ideally, the college or university assumes some of the financial risk in the arrangement, but other funding sources have been pursued including external investor capital. Utilizing a qualitative methodology and comparative case study approach, the study examined three distinct ISA programs at three different universities, two public and one private, to uncover early lessons learned by institutions that have adopted ISAs, as well as their impetus for launching. The ISAs enabled institutions to provide an alternative finance tool as a method of minimizing the problems of default and underpayment on loans where the principal grows, especially for student populations that are debt-averse. ISAs are a vii method of demonstrating more institutional accountability for students’ postgraduate success, though it is still too early to know if they will alter institutional behavior and overall performance. Additional interviews were also conducted with higher education finance and policy experts to place ISAs in the broader finance landscape. Though ISAs are still in their infancy, findings from this study reveal that they are an innovative financing tool that show considerable promise and merit further exploration. viii TABLE OF CONTENTS DEDICATION .................................................................................................................. iii ACKNOWLEDGMENTS .................................................................................................. iv ABSTRACT ...................................................................................................................... vii LIST OF ILLUSTRATIONS .......................................................................................... xiii CHAPTER 1: INTRODUCTION ........................................................................................ 1 CHAPTER 2: LITERATURE REVIEW ............................................................................. 7 Who Pays? A Broad Look at College Affordability .................................................................... 7 Higher Education as a Private vs. Public Good ..................................................................... 10 State Appropriations and Rising Tuition ............................................................................... 13 Borrowing for College: The Student Loan Market .................................................................... 16 Federal Student Loans ........................................................................................................... 16 Private Loans ......................................................................................................................... 19 Impact of Student Loan Debt and Institutional Aid ................................................................... 20 Negative Impact of Student Loan Debt on the Institution ..................................................... 20 A Closer Look at Institutional Aid ........................................................................................ 25 Moving Forward: Recommendations for Policy and Practice ................................................... 28 Theoretical Framework .............................................................................................................. 30 Human Capital Theory ........................................................................................................... 30 Agency Theory ...................................................................................................................... 32 Disruptive Innovation for Social Change .............................................................................. 35 ISAs in Higher Education .......................................................................................................... 37 History of ISAs in Education ................................................................................................. 38 ISAs in Higher Education Today ........................................................................................... 39 Known Challenges of ISAs ...................................................................................................