As the cost of college continues to feel out of reach for many students, schools and startups are beginning to think of new ways to finance the cost of tuition. Income-share agreements, or ISAs, are one method winning the attention of investors and education providers alike.
Here’s the idea: rather than paying tuition up front, students pay back a portion of their income after graduating and landing a job. And if students don’t land a job, they pay back nothing. Coding bootcamps have taken to the model by storm, with many relying on ISA arrangements as their most popular tuition-financing option. (And it has helped them avoid dealing with traditional accreditation and financial aid systems while still giving students a way to afford attending.)
But these days, traditional colleges and universities are trying out income-share agreements too, and for different reasons. While coding bootcamps largely rely on ISAs as a method of revenue and growth—high earners potentially pay back more than an upfront tuition if they land a high paying job—some universities are piloting ISAs to a small group of students who have used up their financial aid options, to see if it can help ease remaining costs.
ISAs are different than student loans. But at many of the colleges offering them, they operate similarly. Students take out an ISA amount—say $10,000—and pay back a percentage of their salary after graduating until the debt is settled. Most colleges (so far) cap the total amount that a student eventually pays back.
Advocates say the financing method puts more responsibility on the school to help students succeed, and provides an alternative to loans and debt. (The colleges are said to have “skin in the game” of whether the students succeed.) But critics say the model could be dangerous for several reasons: future expenses are hard to predict, schools could prioritize giving ISAs to students who are determined more likely to succeed, and students could end up paying much more than the tuition cost if they end up with high incomes.
All of the colleges and universities highlighted below also offer a time period where, if students don’t complete their payments or aren’t making above a set salary level, they don’t have to pay anything. And each partner with Vemo Education, a company that helps the schools design the ISA program and manages the collections process afterwards. Here’s what ISAs look like at five colleges:
University of Utah
The University of Utah faces a unique problem: Graduates of the university have some of the lowest levels of student debt in the country. “The debt aversion is unlike anything I’ve seen” says Courtney McBeth, special assistant to the president and an adjunct instructor at the University of Utah.
McBeth says that low debt is partially due to students starting and stopping, leaving school to work, and later returning once they have money to pay for it. So the university launched a five-year pilot ISA program, called Invest In U, to see if it would encourage students who don’t want to take out loans to finish faster.
“We know that finances is the big thing—they don’t want to take out debt so instead of staying in school and finishing they stop and work because they don’t want to take out loans,” says McBeth.
ISA amount available: $6,000 to $20,000 per academic year (one $3,000 to $10,000 ISA for the fall/spring academic term and one for the summer term)
Percent of monthly income: 2.85 percent
Duration of payments: 3 to 10.5 years, depending upon the ISA amount and major. For example, an education major who takes out a $10,000 ISA would pay back the amount in 127 monthly payments, McBeth says. An engineering major who took out the same amount would be expected to pay that back in 79 months.
Payment cap: 2x the ISA amount that students take out.
Eligibility: Students must be within 32 credit hours of graduation and in one of 18 selected majors, including engineering, computer science, economics, education and urban ecology.
Minimum salary to begin paying back ISA: $20,000
Method of funding: University of Utah raised a $6-million fund through a combination of institutional capital and private donors.
Colorado Mountain College
Officials at Colorado Mountain College had a specific goal in mind when the school launched its ISA program in 2018: help undocumented students pay for college.
Called Fund Sueños (the Dream Fund), the ISA pilot program is targeted at students enrolled in the Deferred Action for Childhood Arrivals (DACA) program or other students who may not be eligible for federal aid.
“If a traditional student had a gap to pay for housing or transportation, they could easily apply for a federal loan. But this student population currently is prohibited from receiving federal financial aid, so this became an alternative to that path,” says Matt Gianneschi, chief operating officer at the college. “We have scholarships available but if that wasn’t enough.”
ISA amount available: $3,000 per year (tuition at CMC is $2,400 per year)
Percent of monthly income: 4 percent
Duration of payments: 60 months (or sooner if a student pays back the total amount of the funds they received before 60 months)
Payment cap: Students don’t pay more than the amount of ISA that they take out.
Eligibility: The pilot program is launching with about 10-12 students, and most of them are entering their final year in a bachelors or associates degree program. A small portion are in their first year. The program is only available for students who are not eligible for federal financial aid.
Minimum salary to begin paying back ISA: $30,000
Method of funding: CMC Foundation raised an initial $50,000 from private donors including Carole Segal, co-founder of Crate and Barrel and a member of the college’s Board of Overseers.
Purdue University
One of the earliest and largest nonprofit universities to begin offering income-share agreements is Purdue University, which in 2016 launched its ISA program dubbed Back A Boiler.
“We have always seen this program as a gap funding source,” says Mary-Claire Cartwright, program manager for Back A Boiler, “so students who have exhausted scholarships, grants and other loans that might need to go to the private loan market.”
During the 2016-17 academic year, Back A Boiler distributed nearly $2 million to 160 students across 79 majors. The program started out with only juniors and seniors, and in the 2017-2018 academic year the school expanded the program to sophomores, too. (Because freshmen are less likely to have a major declared, and more likely to switch, the program has yet to expand to first-year students, Cartwright says.)
Students who apply for the program are required to “read about the ISA and take a quiz about the cap and the downsides so they fully understand,” says Cartwright, acknowledging that the offering is still unfamiliar to parents, students and school officials alike. “When we started the program, we wanted to do no harm.”
ISA amount available: $10,000 per year
Percent of monthly income: Varies depending on major. For every $10,000 taken out from ISAs, students pay back between 1.73 and 5 percent of their income.
Duration of payments: 10 years or less and varies depending on major. Purdue has a price comparison tool where students can select their major and graduation year to see their expected earnings before applying. “When you think of the chemical engineer as a junior, they would be obligated for 2.81 percent for 88 months,” Cartwright explains. “An English major would be 4.97 percent for 116 months.”
Payment cap: 2.5x the ISA amount that students take out.
Eligibility: All majors are eligible. Students must be at least in their sophomore year and have declared a major.
Minimum salary to begin paying back ISA: $20,000
Method of funding: The Purdue Research Foundation funds the Back A Boiler program. The Foundation recently raised another $10.2 million to carry the program into the next two academic years.
Messiah College
Messiah College, a private Christian college in Mechanicsburg, Penn., announced an ISA program in May 2018 after seeing schools such as Purdue and Lackawanna College, a private college in northeast Pennsylvania, launch similar offerings.
So far the program has reached about 39 students who have “tapped out all of their borrowing and no other financing options,” says David Walker, vice president for finance and planning at Messiah. “Our only option to them was to enhance their financial aid packages.”
ISA amount available: $5,000 per year
Percent of monthly income: 3 percent per ISA. For example, students would owe 12 percent of their income if the they took out an ISA for all four years.
Payment cap: 1.6x the ISA amount that students take out.
Duration of payments: 84 months. If students leave the workforce for any reason or make under $25,000, they have have 168 months (14 years) to complete the payments. After that, the university absorbs the ISA cost and the student owes nothing.
Eligibility: All majors and years are eligible.
Minimum salary to begin paying back ISA: $25,000
Method of funding: Messiah pulled $200,000 from its financial aid budget to cover the cost of issuing ISAs for this first pilot year. Instead of distributing that money as scholarships, the university is offering up to 40 students $5,000 in ISAs per academic year.
Clarkson University
Clarkson University in Potsdam, New York boasts some of the highest salaries for graduates in the country. PayScale ranks the university at 41 of the best colleges by salary potential, over schools such as Cornell University and Pomona College. After learning about ISAs, officials and trustees for the college saw their students high earning potential as signal to give the financing method a try.
“It was a match made in heaven. Our president was familiar with this model and liked it, and a trustee came in with the purse open and was a champion of it,” says James Fish, chief financial officer at Clarkson University.
Fish has his reservations, though. “I’m the conservative CFO type, I was nervous going in and I can see some risks,” he says, noting that the income-share agreements are still largely unregulated and it’s still too soon to say if the model will work. But, he’s embracing the experiment. “We have successful grads who make money, and if we properly collect on these then everyone's a winner. They get the jobs they want and we get the money back to use for future generations.”
ISA amount available: $10,000 per year
Percent of monthly income: The percent amount students pay back after graduating depends on what year they take out the ISA. If a student takes the maximum ISA amount ($10,000) for four years, they pay back 6.2 percent of their income.
- First year: 1.70 percent
- Sophomore year: 1.52 percent
- Junior year: 1.50 percent
- Senior year: 1.48 percent
Payment cap: 2.5x the ISA amount that students take out.
Duration of payments: 10 years. Anything unpaid after that the university absorbs the remaining ISA amount.
Eligibility: All years and all majors are eligible to apply. Fish says that “majors that typically ended up with good [employment] outcomes,” and high school GPA and SAT were used “as a sign of potential success,” says Fish.
Minimum salary to begin paying back ISA: $20,000
Method of funding: University trustees have pledged $3 million to support the ISA program for at least the next four academic years.
