The Ultimate Guide to Income Share Agreements
“ISAs assure a manageable payback amount, never more than the agreed portion of their incomes. Although every provider is different, terms tend to range from 5 percent to 10 percent of income for 10 to 15 years, or somewhat higher (10 percent to 15 percent for shorter contracts such as five to seven years). Best of all, they shift the risk of career shortcomings from student to investor: If the graduate earns less than expected, it is the investors who are disappointed; if the student decides to go off to find himself in Nepal instead of working, the loss is entirely on the funding providers, who will presumably price that risk accordingly when offering their terms. This is true ‘debt-free’ college.” –Mitch Daniels, President of Purdue University, commenting on implementing their ISA program
Welcome to… The Ultimate Guide to Income Share Agreements!
Here is what you’ll get in this exclusive 3-part guide:
- A Lightning Quick Overview of What Income Share Agreements are and How they Work
- The Present State of ISAs and How Innovative Universities are Using Them
3. The Future of Higher Education and ISAs
In this guide, we’ll show how we can use and improve income share agreements to reduce and help solve the student debt challenge. We’ll also show how ISAs can help universities create outcomes based accountability systems that align incentives between a school and a student.
The name might sound like a snooze, but income share agreements are actually a revolutionary type of financial arrangement that are altering the future of higher education.
A Lightning Quick Overview of What Income Share Agreements are and How they Work
ISAs are helping universities save money, preparing their students for the future of work, and most importantly, helping their students avoid unnecessary debt burdens.
Here is how income share agreements currently work for universities and their students:
The university agrees to provide an upfront payment to cover a portion (or all!) of a student’s tuition.
In exchange, when the student graduates and is able to find a job past a certain minimum income threshold, the student begins making a certain number of payments until they are finished. These payments are a small fraction of their salary. Once the student has completed the payments, they keep 100% of their salary.
Income share agreements provided less risk of students defaulting on their loans because they aren’t forced to pay a certain dollar amount every month — the typical arrangement in a traditional loan.
ISAs can help increase economic opportunity and educational access for students who might lack a creditworthy co-signer, which all too often locks out individuals from our higher education system. In effect, ISAs help democratize access to education in a way that our current post-secondary education finance system doesn’t.
To bring you and your team this guide for free, The Mission team partnered with one of the most innovative education technology companies in the world, Vemo Education.
Please feel free to print this guide out, share, and re-distribute it however you’d like.
The Present State of ISAs and How They Can Help Universities
Currently, there are many experts who have been studying, implementing, and leveraging technology to create new kinds of ISA programs.
Here are five of the best recent takeaways from experts in the ISA field:
“We found that the demand for ISAs is out there… The demand for an alternative to loans exists, so it stands to reason that if colleges start implementing these types of programs, they will be utilized…” — Jason Delisle, Author of Student and Parent Perspectives on Higher Education Financing
“The Messiah College community is committed to preparing students for lives of service and leadership. Because income share agreements adjust the amount of payment depending on income, our new ISA program will increase access and affordability for both current and prospective students, and enable our graduates to pursue their chosen career path without the anxiety that so often accompanies student loan debt.” –Dr. Kim S. Phipps, Ph.D and President of Messiah College
“Our [ISA program] provides a financial and intellectual return. These students enrich classroom discussion…” –Anthony Collins, President of Clarkson University
“Income share agreements provide an opportunity to align our interests with those of our students, which fits perfectly with our mission to ease the burden of college costs.” –Mark Volk, President of Lackawanna College
“It is a very interesting alternative because it is predicated on expected future income of students and their success. It doesn’t look at the asset value, wealth, income level, or the student or his parents. It is truly based on expected outcomes.” –Tonio DeSorrento, CEO of Vemo Education
So what’s next?
The Future of Higher Education and ISAs
“It’s inevitable at some point there will be a cap on student loan guarantees. And when that happens you’re going to see a repeat of what we saw in the housing market: when easy credit for buying or flipping a house disappeared we saw a collapse in the price housing, and we’re going to see that same collapse in the price of student tuition, and that’s going to lead to colleges going out of business.” –Mark Cuban
In America, there is currently a student debt load approaching $1.5 trillion, and college costs are only getting higher. Students frequently default on their student debt, which not only means that the students are left with poor credit and an iffy financial history at a young age, but lenders and taxpayers are left on the hook for the funds.
We need better solutions that leverage technologies, and ISAs are one way universities can create incentives that give students more options.
The good thing is, there are universities that are pioneering, and already implementing, the ISA model.
The even better thing is that entrepreneurs like the team at Vemo Education have built a technology company that makes creating, implementing, and running ISA programs easy for universities.
A range of schools are utilizing Vemo Education and ISAs, from flagship public like Purdue to private nonprofit aligned with their regional labor market, like Lackawanna College in Scranton.
Other colleges and universities that are adopting Vemo Education’s new model for ISAs include Messiah College, Point Loma Nazarene University, and Clarkson University.
At The Mission, we believe that companies like Vemo Education, who are creating technology to perfect the ISA model, are critical to democratizing higher education and creating the right incentives for both universities and students to succeed.
ISAs don’t solve all the problems with student loan debt. But a $1.5 trillion debt load is an unsustainable number, and yet, somehow, the debt keeps growing.
Income Share Agreements aren’t a catch all, but they might be one important part of helping to ensure that higher education is attainable for anyone that has the heart and drive to pursue it.
