College Sponsored Income Share Agreements – A Comparison of ISA Terms from 6 Schools
Recently, it seems there is more positive news coming out weekly recognizing Income Share Agreements (ISA) as an innovative alternative to finance education without burdening the student with additional debt. This post will review and compare terms from ISA programs sponsored at the University level. In a future post, we’ll cover ISA programs at non-accredited coding schools, and also explain key differences.
The most prominent University-sponsored ISA program is Purdue University’s “Back a Boiler” initiative, which launched during the 2016-2017 academic year. Mitch Daniels, President of Purdue and the former Governor of Indiana from 2005 to 2013, has championed their Income Share Agreement model as a better way to help finance an education. To date, Purdue’s program has disbursed over $11 million in funding through Income Share Agreements serving around 900 Purdue students. The Purdue program, which is meant to supplement student aid after all subsidized federal loan options have been exhausted, provides eligible students with up to $33,000 in funding throughout their college career.
If you want to hear Mitch Daniels personally describe Purdue’s ISA program, check it out at the Freakonomics podcast.
This post is limited only to comparing ISA program terms, so for those interested in comparing an Income Share Agreement to private or federal loan options, may do so using Purdue’s ISA/Loan Comparison Tool.
The Back a Boiler – ISA program is open to Purdue students in their sophomore through senior years. The most interesting aspect of the Purdue program is that the Income Share Percentage (or “Income Share”) varies depending on your major. For those unfamiliar with Income Share Agreements, the Income Share is the fixed percentage of your future earnings that you agree to “share” with your funder to pay-back the money you received from the ISA. You can get a crash course on relevant ISA terms by clicking here.
The Purdue University - Back A Boiler Program
What is most noteworthy about Purdue’s model is the inverse relationship between expected earnings and the Income Share Percentage. In other words, Purdue’s ISAs require students entering potentially high-paying careers to share less of their future earnings as compared to students entering low-paying fields.
For example, say two Purdue University students will both receive a $10,000 income share agreement under the program. Kevin is a chemical engineering major (a high earning career), and Erica is majoring in English (a comparatively lower earning career). To pay back his ISA, Kevin will need to share 2.6% of his future earnings, over a period of 7 years and 4 months. However, to repay the same advance, Erica must share 4.5% of her future income, over a contract term of 9 years and 8 months.
Why is this? Giving higher-earning majors better terms is one way to encourage a well-diversified applicant pool. Since a key benefit of Income Share Agreements is the built-in insurance protection against unemployment, like any insurance policy, it’s crucial to diversify your pool with a wide range of applicants. However, an even more interesting benefit of the Purdue model is that it provides transparency to prospective students as to which degrees have a greater likelihood for higher earnings. This helps future students seek out fields of study with the highest expected returns.
Below is a representative list of Income Share Percentages for five Majors, listed from lowest expectant earnings to highest.
Income Share Agreement Terms from 6 School-Sponsored ISA Programs
While Purdue isn’t the only college offering a school-sponsored Income Share Agreement program, it is undoubtedly the most well-known. Below is a list of comparative terms from other Colleges and Universities offering their own version of an ISA program:
Where To Look If Your School Does Not Sponsor An ISA Program?
If you’re a student interested in exploring whether an Income Share Agreement is right for you, and your institution does not offer a school sponsored solution, see if you qualify for Merit Financing™ by Meratas.
Merit Financing is a form of Income Share Agreement, though with added protections designed with the student’s success in mind.
Unlike student loans, with Merit Financing, there is no set amount you must pay back. We assume the risk that the amount you ultimately repay may be less than the amount you received. As an ISA, your payments under Merit Financing will adjust with your income, effectively providing protection against the risk of not being able to afford your monthly payments due to unemployment, underemployment, or other financial hardship.
If your education does not lead to higher earnings, we will lower or waive your monthly payments. Alternatively, if you become a higher earner, your payments will never exceed a pre-set cap chosen at the time you enter the contract. These upside and downside protections are unheard of in the private loan market.
If you believe you are a good candidate for Merit Financing™, we encourage you to apply. We are constantly evaluating new programs, and if we do not currently offer Merit Financing for your specific degree/career, we may do so soon.