How Yale's 'Failed' Income Share Experiment Worked for Me
In 1973, I applied to Yale on a lark.
I started my college experience at the University of California, Santa Cruz. Years earlier, my father had made me a deal: He would pay for my college, but only if I attended a school in the UC system. But halfway through the first semester of my sophomore year at UCSC, I dropped out to work on Tom Bradley’s mayoral campaign. After the victory, I expected to return to UCSC, though I did apply to transfer to Yale.
When I was accepted, I had no idea how to pay for it.
Then I got an unusual offer. In exchange for a percentage of my income after graduation, Yale would front me the cost of tuition. And so I became a part of Yale’s famed “Income Share” experiment, derided by some as a failure, but — despite its flaws — quite beneficial to me. And, as it turns out, it’s a concept that’s regaining traction today.
In recent months, a growing cohort of colleges and universities — from big state schools like Purdue University to small private institutions like Lackawanna College — have adopted income share agreements (or ISAs) as an alternative to certain student loans. Proposals for a revamped Higher Education Act, likewise, call for “risk-sharing” between institutions and students — an idea that, with good reason, enjoys support on both sides of the aisle.
As college costs continue to grow, and the student debt load approaches $1.5 trillion, higher education is beyond the reach of a growing number of students. Some reports suggest that as many as 25 percent of academically qualified low-income students apply to no college at all. My experience suggests that ISAs might help to address the deterrent effect of high tuition. They might also offer a more progressive approach to allocating the financial burden between students and institutions — and among recent graduates.
Like many aspiring students, I knew that a traditional loan was a financial burden difficult to discharge. And, like most, I had fears about my ability to compete and succeed at an elite institution. Although I generally understood that an Income Share Agreement would obligate me to payments, it mitigated both the immediacy and the permanence of debt. I knew I would have an obligation to make payments, but I also knew that I would have more choices to make in terms of employment. And so, the promise of Yale’s ISA program helped to spark — or at least elevate — my higher education aspirations.
The ISA worked well for me after graduation as well. After completing law school, I was able to take lower-paying, public-interest positions. I was able to pursue work that I was passionate about without the burden of fixed principal and interest payments from a traditional loan. If my income dropped below a certain threshold, no payments would be required.
Ultimately, though, while the spirit of Yale’s program was generous — and in some ways laid the groundwork for today’s more thoughtful initiatives — the program’s design proved unsustainable.
Because we signed our contracts as a group rather than as individuals, we all paid a percentage of earnings until the entire group’s balance had been repaid. The highest earners had the chance to prepay and opt out, leaving the rest of the group to shoulder the burden, despite their lower salaries. In the end, I likely wound up paying more than I would have paid with a more traditional loan.
Modern ISAs address this issue by establishing caps on how much students can pay — in some cases, as low as 100 percent of tuition. With other programs, like Purdue’s, caps are set higher (say, 250 percent) to create what is, in effect, a progressive tax — where high earners offset the cost of their lower earning peers. Unlike Yale’s program, today’s ISAs are also designed to ensure that graduates only pay when they make above a minimum income threshold.
Schools that adopt ISAs are also making greater commitments to transparency. Purdue’s Comparison Tool allows students to compare ISAs with private or Parent Plus loan options. By helping students understand their payment options, colleges and universities can better inform students about the risk and benefits of income share agreements in relation to other financing alternatives — something available to few, if any, of the Yale participants.
As a participant in the first “failed” ISA program, I might seem an unlikely proponent of this emerging approach to student finance. But in my years in both the private and public sector, I have been struck by how successful initiatives often follow “failures.” The critical factor is whether people learn and improve or simply give up. That’s why I’m hopeful that income share agreements hold potential to ease the burden of debt, align costs with outcomes, and increase college-going aspirations. At its core, the benefits aren’t too different from when I was a student. It’s about removing cost barriers that prevent so many students from pursuing a degree. It’s about a more fair and equitable mechanism for determining who pays what on the back end. I’m excited to see how today’s approach might transform the way Americans think about, and pay for, postsecondary education.
Blair Levin is a non-resident senior fellow with the Brookings Institution’s Metropolitan Policy Program. A graduate of Yale College and Yale Law School, he previously oversaw the development of the 2010 United States National Broadband Plan and served as Chief of Staff at the Federal Communications Commission from 1993-1997.