Income-share agreements have emerged as a new financing option for colleges and nontraditional education programs. They’ve generated excitement among those who believe that ISAs can offer a much more student-friendly form of financing. But there are also concerns that they might not be, in part due to the fact that this is a recent trend, and in part due to the fact that ISAs are still legally in a gray area and largely unregulated.
What do we know so far about from research into how ISA programs are faring? Perhaps more importantly, how do students decide to take one on, and how are they faring? And how has the pandemic—which has disrupted colleges and labor markets—impacted the momentum behind this new financial experiment?
Those were the questions we posed in the latest episode of EdSurge Live, our monthly online discussion of big ideas in higher education. Our guests were:
- Claire Gregowicz, a digital marketing manager at CoinUp who took out an ISA to complete a program from the San Diego Workforce Partnership/UCSD extension program;
- Andrew Hoyler, a first officer at PSA Airlines and the first graduate from Purdue University’s Back a Boiler ISA program;
- Ethan Pollack, director of the Financing the Future Initiative at Jobs for the Future; and
- Barbara Weber, vice president of school operation and school partnerships at Better Future Forward.
Listen to the conversation using the player on this page, or read a partial transcript of the highlights below, edited for clarity.
EdSurge: What are students’ general first impressions upon hearing about an ISA? What do they need to make an informed decision about it?
Gregowicz: I thought it was too good to be true. I read all of the fine print, understood the [income payment] threshold and percentages, and thought, what a good idea. When I told my son, the very first thing he said was: “Mom, I think this is a scam. I think they’re just looking for your social security number.” That was really like his first impression as someone who wasn’t really looking to go the college route and was really afraid of student debt.
Weber: At Better Future Forward, we ask students to participate in one-on-one advising sessions with us. We talk to them about their financial aid and making sure they take advantage of all of the aid that they can possibly receive. But beyond that, we also provide some estimates for them. So if they think they’re going to make X, and their income share percent is Y, what will that scenario look like when they’re out of school? We feel that students are better informed to make a decision whether or not this is a good choice.
[Audience Question]: The students who took out ISAs mentioned there were some kinks that those programs were figuring out. What were some of those?
Hoyler: Purdue was really one of the first universities to go after the ISA program as a whole. There really were no guidelines, so the investors and the Purdue Research Foundation were really going into it blind. Some of those kinks they had to work out were the exact amount of the contract terms—which vary from student to student based on their projected industry that they’re going into—as well as the monthly income percentage that they’d be paying every month.
I was really one of the first guinea pigs. I’m paying 7.92 percent of my monthly income for a 104-month term, and the investors were very open with me during the one time we met them at a, a dinner hosted by the Purdue president. For someone else who goes into the Purdue flight school three years down the road, their payment term and percentage might look a lot different than mine. They might be paying back money towards the ISA for a shorter period of time and even a lower percentage of their income. [Editor’s note: Purdue’s terms have, in fact, changed since Hoyler signed up for his.]
These are things that they need data on to make those decisions and work out over time. They don’t have a crystal ball saying this is the right percentage or this is the exact payment term. So they’re really trying to find that middle ground of making sure it helps the students and might have certain advantages versus a Parent PLUS loan or Perkins loans, while also giving that return on investment for the investors.
[Audience Question]: Do ISA programs offer more student support services than you might have had otherwise? In general, does offering an ISA also require providing a greater stack of other student supports?
Gregowicz: I do think it’s required … to have somebody help me with, “What can I do with the certificate now with my skills? Where can I go with that?” I do think it is—for student success and for the success of the ISA—necessary to have those kinds of things.
Before COVID, my son was working as well while he was doing this program. His car transmission died, and that was a real hardship. I reached out to the program for help, and they sent us a bus pass just so he could continue working… Even that little thing eased my son’s life so that he wasn’t stressing about it, and he could keep concentrating on his classes. Was it necessary? No. Does it help? Yes. It is a factor in the success of the ISA program.
EdSurge: Ethan, you recently authored a whitepaper about “student-centered ISAs.” What does that mean, and how can they be designed?
Pollack: ISAs are powerful tools. They can be used for good. They can be used for ill. Or they can be intended to be used for good and accidentally be used for ill. I think of them as similar to cars—they can be very dangerous, but they can also be enormously helpful.
One thing that is really important is making sure students understand what they’re signing up for. ISAs should have clear terms and disclosures that try to conform as much as possible to the Truth in Lending Act, so that comparisons can be made between ISA and other types of financial products.
Students should also not bear most of the risk. The promise of ISA is that the risk is being shifted from the student onto the providers, either the schools, the third-party providers, investors … and the design of the ISA and operation of the ISA should be consistent with that promise. That means limiting excessively long payment windows [and other terms].
Finally, the quality of the education matters. There’s a difference between the education and how you finance the education. A lot of the criticisms I’ve seen of ISAs come from students who have had bad experiences—not with the ISAs, but with the underlying quality of the education. We certainly don’t want predatory schools to be using ISAs to help them become more successful… We want to make sure that ISAs are lifting up the good schools and make it more difficult for the bad ones to operate.
EdSurge: The pandemic has impacted both colleges and labor markets. How has that affected the momentum behind ISAs?
Pollack: A lot of ISA funds are modeled in a way that they are assuming a certain rate of financial return, or at the very least financial solvency. With a recession, and with students potentially not getting the jobs the providers thought they would be getting, that kind of throws a bit of a wrench into some of those solvency plans. If a school set up a fund thinking they were going to be solvent in a few years, this might get pushed by another few years or so.