Date of Creation
3-28-2022
Degree Type
Departmental Honors Thesis - Restricted Access
First Advisor
Professor Justin Svec
Abstract
Purdue University, through their “Back a Boiler” program, is the only major research institution in the United States to offer an Income Share Agreement (ISA) as a form of college financial aid. With an ISA, students receive a specified amount of money to pay for college in return for a percentage of their future income over a certain number of years indicated in the agreement. One concern about the ISA is that it suffers from adverse selection, where students who expect low incomes after graduation predominantly choose the ISA. An initial empirical analysis of Purdue’s program does not find evidence of adverse selection between students of different academic ability or backgrounds in a given major. This is a hopeful sign for the ISA. However, it is possible that the lack of adverse selection was a product of people’s ignorance about how the ISA program works and who benefits most from its conditions. Using experimental data from 31 college participants at the College of the Holy Cross, I measure the impact of additional knowledge of ISAs on the participation rate for ISAs over a traditional loan. I find that greater knowledge of the workings of the ISA does not lead to greater adverse selection and, in fact, might lessen it
Recommended Citation
Seitz, Karter, "Is a New, Innovative Form of Financial Aid Already Threatened" (2022). Economics and Accounting Honors Theses. 41.
https://crossworks.holycross.edu/econ_honor/41