Investors buying shares in college students: Is this the wave of the future? Purdue University thinks so.

Danielle Douglas-Gabriel:

This week, Purdue University took a step toward answering some of those questions by partnering with Vemo Education, a Reston-based financial services firm, to explore the use of income-share agreements, or ISAs, to help students pay for college.

Through its research foundation, the school plans to create ISA funds that its students can tap to pay for tuition, room and board. In return, students would pay a percentage of their earnings after graduation for a set number of years, replenishing the fund for future investments. Purdue is relying on Vemo, along with nonprofits 13th Avenue Funding and the Jain Family Institute, to flesh out the terms.

There’s nothing new about ISAs. Economist Milton Friedman floated the idea in the 1950s, and a handful of Latin American countries use the agreements. Yet they have been slow to catch on in the United States. A handful of small companies and nonprofits, including Cumulus Funding and 13th Avenue, are piloting programs or offering contracts on a limited basis, but the market is in its infancy.