Income participation agreements are characterized by a percentage of future income for a given period of time. They can function as non-voting shares in a company where the individual student is treated as a business. In the U.S. system, this usually involves the investor transferring funds to an individual in exchange for a fixed percentage of their future income. [3] [4] Other features of income participation agreements may: (a) a fixed period for income participation (b) an income exemption if the borrower is not liable for a specified income and/or c) a redemption option in which the borrower may pay a certain fee for the exit of the contract before the full term. Some ISA investors offer different students different terms based on their likelihood of success, while others offer the same conditions to all students. Potential investor groups could include for-profit businesses, non-profit altruist organizations, alumni groups, educational institutions and local, state or federal governments. [3] In the 1970s, Yale University attempted to replace traditional student credits with human capital contracts, a program designed by economists Milton Friedman and James Tobin. However, the program was eventually abandoned as a failure.

[5] Other attempts to use human capital contracts (or student loans with assimilable payments) to finance students have also generally failed in the event of serious selection problems – students who opt for such programs are generally those who expect low-income careers and who are least often able to repay their loans. In addition, human capital contracts, such as income tax, can contribute to moral hazard by preventing borrowers from maximizing their income and encouraging them to focus on forms of wage-earning earnings such as. B a nicer job, better services or lighter hours. [6] In 2013, Oregon lawmakers passed a bill that would study Pay It Forward as a college funding system. The model would allow students to study at university without study and then pay a portion of their income after graduation to finance the cost of their studies. However, unlike the Income Participation Agreement model, Pay It Forward would be publicly funded and would provide fixed percentage repayments for all institutions. [7] In the 1970s, Yale University tried a modified form of Friedman`s proposal with several cohorts of students.