Income Sharing Agreement In Higher Education System of India

Seeing the intense socioeconomic skewness in the Gross Enrollment Ratio (GER) in India’s higher education system, the obfuscation between inclusion and excellence has become a very challenging and the mammoth task in this VUCA (Volatility, Uncertainty, Complexity, Ambiguity) world. The humongous mismatch between industries demands and universities supply in the form of the requisite skillful labor force in the era of the technology-driven globalized world become an equally challenging and uphill task for the government of India (GOI). Imparting quality education among the world’s largest young population not less than a thought-provoking exercise. Income Sharing Agreement (ISA)-an equity investment in an individual’s future earning, is one of many possible noble techniques to overcome many such difficulties in India’s higher education system.

The common issues exist in the current higher education system is the lack of accountability across the universities in India. Although the free flow working environment in the higher education system is also equally important, but not at the cost of quality and performance. There is a lack of a strict performance-based appraisal system. Although monitoring and governing such a system in itself is a tedious task. Self-interlocking system seems to be more suitable in such kind of system.

Thus, seeing the present scenario of accountability (Checks & balances) in the higher education system and the Government of India’s allocation of funds for higher education, even less than 2% of total budget reminds us the Nobel prizewinning economics professor, Milton Friedman’s 1955 essay the role of government in education where he argued for equity investment in an individual’s future earning prospects – ISA.

Here is exactly what he has written “investors could buy a share in an individual earning prospects; to advance him the funds needed to finance his training on the condition that he agrees to pay the lender specified fraction of his earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which compensate for the failure to recoup his original investment from unsuccessful”.

In 1970s Yale University made a modified version of Friedman’s proposal by introducing it for several cohorts instead of making individual student contracts. But could not be succeeded because of a disproportionate share of earnings. It is called Income Sharing Agreement (ISA). It’s an education financing mode for needy and competent students. It is a substitute for an education loan-based financing system. It functions like this;

So, there are three parties involved in it; students, educational institutions and financial institutions. If a student wants to enrol in demanding and valuable skill imparting course in an institution and find himself/herself unable to pay the required sum of money/fee (usually students do not have collateral) then institution step in and act as a bridge between student and the lender and arrange funding for the same. An institution does so only on the condition that after getting a job and prespecified salary student has to share a portion of monthly income with the institution to pay back the loan.

It’s important to note here is that ISA operationalized if and only if the student earns a prespecified amount or more after completion of course. If a student earns less than a prespecified amount then he does not pay anything back. Same as the case with not finding a job.

So, in one way the new innovative ways of financing reduces the burden of students, which used to be there in case of education loan and at the same time will solve the problem of social-economic skewness in higher education. Apart from that, it is an outcome-based teaching-learning process.

In the end, the institution has to impart the necessary skill and up to the need of the market to ensure students placements otherwise, their funding gets lost without a single rupee return.

One of the most unacceptable and biggest concerns with ISA is from its nature of indentured servitude. Where one has to work for one person as per the contract. The same concern was raised by Kevin Roose in New York magazine, and wrote that “young people in the post-crash economy the chance to indenture themselves to patrons in the investor class”. But that is not the case if we see it concerning loan agreement. Under ISA students have no legal obligation to work under in a particular industry, and it’s illegal for investors to pressure them into a certain career and hence on this ground we can say that students are no more indentured.

So basically, in the case of ISA investors grow or get the benefit when students grow. Because of funding, investor’s interest lies in the growth of the students. So, in this case, the investor guide and mentoring students, and help in finding a good career plan and jobs.

According to a study in the Journal of Applied Psychology (Wolff and Moser, 2009), a greater extent of networking is associated with a higher salary (correlation=30%). And according to another study by Allen et al. in 2014, career-related mentoring is associated with greater compensation, salary growth, and promotion.

So, this is a self-interlocking system which seems quite interesting and needs of the hour especially in a country like India.

Some of the Startups like AttainU, InterviewBit, Pesto Tech, AltCampus are offering the ISA model in India. Lambda School successfully implemented in the US and now planning to set its second-largest set up in India.