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Giving Compass' Take:
• Hallie Busta provides important considerations that colleges using or thinking about using income share agreements need to address.
• How can funders work to ensure that income share agreements work for all parties and do not take advantage of students?
• Learn more about the pros and cons of income share agreements.
ISAs are growing in use as a financing source for boot camps and other training programs that don't qualify for federal aid. Traditional colleges are eyeing ISAs, too, with around 30 offering or accepting them. While boot camps tend to use ISAs to fund tuition in full, colleges so far are using them to achieve specific goals, resulting in smaller sums issued to a subset of students.
But with student debt levels climbing and colleges struggling to stem tuition increases, ISAs in traditional higher ed are not without scrutiny. While proponents view them as a lower-risk, interest-free alternative to some kinds of student loans, critics say they amount to debt from students' point of view and don't force colleges to address rising costs.
Those concerns heightened in recent months after the U.S. Department of Education suggested it may pilot an ISA program. That spurred Congressional Democrats to ask for details, fueling more questions about how ISAs work.
Below, we examine some of those questions for colleges considering ISAs.
How are colleges using ISAs?
Colleges tend to use ISAs to address "some strategic goal around access or opportunity," said Tonio DeSorrento, CEO at Vemo Education, which works with institutions to administer ISAs. "That's why you see such a difference in income-share agreements from college to college," he added.
How are ISAs different from other college financing options?
In higher ed, ISAs are viewed as a financing tool for students after they exhaust other aid options such as federal loans, scholarships and grants. In particular, they can replace PLUS or private loans, said Beth Akers, senior fellow at the Manhattan Institute for Policy Research.
Watchdog groups, however, say colleges should be wary of common elements of ISA contracts that can make them equivalent to or more stringent than private loans. According to Joanna Darcus, staff attorney at the National Consumer Law Center, these include:
- Arbitration clauses and class action bans.
- Penalty fees for early repayment that can be around two-and-a-half times the original amount borrowed.
- The possibility a borrower will earn just over the income threshold and therefore struggle to make payments.
What can colleges do to ensure students understand those differences?
Transparency is critical, sources in favor and wary of ISAs told Education Dive.
What kind of regulatory oversight are ISAs subject to?
Competing opinions on how loans fit into students' financing bundle stem from differing views on how they should be regulated.
How can you tell if it's working?
Purdue has so far inked 870 student ISA contracts, with around $10 million raised in funding. Officials there look to students' response and their ability to make their payments as a success indicator.
In San Diego, Hall said he will look at graduates' income over the repayment period, the number of completions (they estimate 80% of students will do so) and how many people surpass the $40,000 income threshold right away in order to determine if the ISA is paying off.
Read the full article about income-share agreements by Hallie Busta at Education Dive.