While university studies are almost free of charge in Switzerland and other European countries, university tuition fees are often exorbitant in the United States. Some students are lucky enough to be financed by their parents, while others have the courage to work part-time to pay for their studies. But most of them use student loans. They often accumulate a large debt that that becomes a heavy burden for many years, especially if they are unable to find a well-paying job after graduation.

However, there is an alternative to student loans: the Income Share Agreement (ISA). The idea is that in exchange for paying their tuition, the student agrees to give back a portion of their salary to the funding entity for a certain period of time.

American economist Milton Friedman proposed the concept of a revenue-sharing agreement in 1955 in his essay « The Role of Government in Education ». 

In the 1970s, Yale University tried a modified form of Friedman's proposal with several groups of undergraduate students. All members of the group agreed to repay a percentage of their earnings until the balance of the entire group had been repaid. However, this system had created frustration for students forced to pay more than their share.

In 2013, Oregon State legislators passed a bill called "Pay It Forward" as a system for university funding. 

In April 2014, Senator Marco Rubio announced the introduction of legislation in the US Congress that expands the use of revenue sharing agreements. Today, ISAs are offered by some universities and job training programs, such as coding boot camps.

Revenue-sharing agreements represent only a small portion of the higher education financing market in the United States. 

About $250 million was funded via ISAs in the US in 2019, compared to $1.6 trillion in outstanding student loans. 

But the ISA market is growing. By 2019, 40 colleges and vocational institutes were offering or developing ISA programs, just three years after Purdue University became the first major university to do so. Experts estimate that 175 schools could issue up to about $500 million in ISAs in the near future. 

For investors, ISAs offer significant appeal. This new asset class is positioned on the risk-return scale between consumer loans and equities. Indeed, this investment involves holding a claim on private individuals. But unlike traditional loans, returns are variable. The valuation of this investment depends on future cash flows (just like stocks). 

A real ecosystem has been created around ISAs. First of all, universities ("colleges") and specialized training schools ("bootcamps") validate and offer students access to this type of financing. The educational world can indeed play a filtering role in the allocation of financing, by sharing information on those who apply for a loan (their grades, motivation, skills, etc.).

A key component of this ecosystem is the marketplaces. Until recently, one of the obstacles to the development of the ISA market was the market itself - or lack thereof. 

Here's how the ISA marketplace has traditionally worked. A university decides to offer an ISA program to its students. It must then determine the requirements, set up the business processes and web portal to promote this funding option to students and parents. 

The school must then find a way to fund the ISA program. Rather than self-funding, many schools open their ISAs to outside investors to reduce risk. But to do so, they must create some sort of fund and actively seek investors. This is not an optimal process for either party. Most importantly, there was no exchange for a university to find buyers for a $50 million bond that funds a student group. 

As mentioned above, the creation of marketplaces facilitates the meeting between students and investors. But operational complexity and lack of liquidity are major obstacles to the expansion of ISAs. 

Blockchain technology could play a major role in the evolution of this asset class. The use of smart contracts to launch and manage the life cycle of ISAs could facilitate their use and lower operational costs. Thanks to the tokenization of ISAs, it will become possible to democratize this market and make it more liquid (via online trading platforms).