Investment in human capital is a revolution of education funding

Abstract

Ensuring a high level of education funding is an important priority for the development of innovative economy. This article is about a new financial instrument, which is called Income Share Agreement (ISA).According to ISA the investor transferring funds to an individual in exchange for a fixed percentage of his/her future income for a fixed period of time. ISA is an alternative to the traditional student loan. Unlike the loan, students may pay more or less than the amount financed or even not to repay at all. A payment would depend on their salary after education. ISA provides strong protection for the students, because the part of risk transfers from the student to investors. The investor diversifies his risk building investment ISA-portfolio. Moreover investors have strong incentives to support the students via advising, mentoring and to help them to build career. He can lose a bit of funds in some ISA-projects, but more often he will hit a jackpot. This article discusses some of the most significant ISA-projects: MyRichUncle, Lumni, IBR Swap, 13th Avenue Funding and et al. These ISA-projects have different types of financial models, but all of them are referred to Income Share Contracts. We compare the current debt model and income-based alternatives, which has both advantages and disadvantages.