The higher education system in the U.S. was already difficult enough to afford for many before COVID-19, and the pandemic has only worsened the problem.
As a result of the crisis, many low-income students dropped out of college this past fall and thus, were less likely to apply for federal student aid. This points towards student’s uncertainty about whether to continue their higher education during COVID-19.
Surveys have also shown that as many as 40% of higher-income families who did not previously plan to apply for federal financial aid now intend to do so, which has made many wonder if the federal student aid program could run out of money.
Students watching the pandemic play out have every reason to be cautious about taking out additional loans to pay for college. Especially with the job market’s uncertainty at the moment, a new bill that comes each month no matter what could sound like a risky idea.
Income Share Agreements (ISA) could be a good alternative to traditional private student loans. With an ISA, a student's cost of education is deferred. Once they graduate and earn a job making over a certain threshold, the student then repays a fixed percentage of their gross income for a predetermined amount of time. Since their payments are linked to their income by a percentage, if the student’s income drops, so do their payments. If the student loses their job for any reason or if it falls below a certain threshold, their payments are paused with no penalty and no interest accrues while in deferment. (Read more about the benefits of Income Share Agreements here.)
So how have Income Share Agreements helped both schools and students during this pandemic?
Income Share Agreements Offer Unique Consumer Benefits
During economic hardships such as COVID-19, students with federal loans may still see interest continue to accrue, even if their payments are paused. Though some private student loan providers have offered relief during the pandemic, the exclusion of private loans from the CARES Act—which put federal loans in forbearance until 2021—left many borrowers without a safety net.
With an ISA contract, no interest accrues if your payments are paused.
Here at Meratas, we’ve seen many students take advantage of the deferment process in a time where many have lost their jobs. Schools offering ISAs give students peace of mind. If there are economic hardships that are out of the student’s control that results in a job loss, they know their payments will be paused.
Anytime the student’s income drops below the Minimum Income Threshold, he or she will pay nothing until their income rises again. The benefits that ISAs offer provide a safety net for students while they find work.
Take for example Andrew Hoyler who used Purdue University's "Back a Boiler" ISA program to go through the professional flight program in 2017. Now a pilot for PSA Airlines, he has been making payments on his ISA for about 30 months.
"Starting pilot pay is not very high, so I knew I would not have much discretionary income my first few years after graduation," Hoyler said. "ISAs provide a safety net if I find myself out of work. If I reach the end of the payment term before I finish paying things off, the ISA is forgiven with no questions asked."
Since the airline industry was rocked by the COVID-19 outbreak Hoyler is grateful to have that safety net now. "The ISA is giving me a sense of relief. If I find myself furloughed, my payments stop with zero interest," he says.
Graduate Savannah Williams agrees, stating her ISA with Purdue University gave her “peace of mind” that she could enter the workforce without carrying any accruing interest.
ISAs have given students in programs from nursing to piloting, peace of mind because they only pay if their education translates into a paying job.
Income Share Agreements Help Those Looking for Career Changes
With unprecedented unemployment stemming from the coronavirus pandemic, many turned to Bootcamps to upskill or enter a career that was “pandemic proof. Income Share Agreements gained traction at online skills training programs, including many coding bootcamps such as Lambda and Holberton School. According to a 2019 survey by Course Report, 17 percent of boot camp graduates in 2019 used an ISA or some other form of deferred tuition.
Because there is no federal student loan program for trade schools, bootcamps, or some vocational programs, students without the credit history to get approved for a private loan are often excluded. But Income Share Agreements open the door to bootcamps such as coding or UX design for these students.
For example at Lambda School, their students don’t pay anything until they get a job making at least $50,000 a year. This is in line with the average salary for a coding boot camp graduate, nearly $67,000, according to this Course Report survey. Lambda also promises to help students "hunt down jobs, nail interviews, and negotiate salary."
The jobs students can get after programs like these are every bit as high paying as the college graduate jobs. However, there are few federal student loans available for these programs, but ISAs change that completely.
ISAs help skills training programs signal to prospective students that they stand behind their product by having skin in the game.
Income Share Agreements Help Break Down the Barrier to Higher Education
The Student Borrower Protection Center reported that outstanding private student loan debt grew 71% in the last decade, outpacing auto loans, credit card debt, and mortgage debt. For many families, the economic pinch will make it even more difficult to qualify for private financial aid.
The private student loan market is dependent on FICO scores and cosigners, so if you don't have parents with great credit scores that are willing to cosign for your traditional private loan, you're likely not going to get approved for a private student loan.
There are even students with 700 FICO scores (normally high enough for approval at a good interest rate) being quoted 18-19% interest rates on their loans for college or being rejected outright if they don't have a cosigner.
In other words, amid uncertain economic times, the barrier to entry into higher education has gotten even higher. News of these trends has spread to universities. A recent survey of university presidents from Inside Higher Ed found that 90% of respondents are concerned about a long-term decline in overall future student enrollment.
Using Income Share Agreements, we can open the doors to higher education to millions of Americans that either went to college and dropped out because of lack of availability of loans, or that never went in the first place.
By utilizing ISAs, programs have seen higher enrollment, improved retention, and accelerated completion.
Income Share Agreements are making headway in the education finance world. Being a financing option that can withstand economic uncertainties such as a pandemic makes them a good option for students and schools alike.
Meratas provides a full-service SaaS Platform for Schools and Skills-Training Courses to design, administer, and service custom ISA programs. We help institutions create impactful ISA programs designed to promote student accessibility and increase enrollment.
Our programs are intended to incentivize students, schools, and capital providers to work together to promote and finance only the best educational programs that lead to more successful careers.
If you’re interested in offering an ISA option at your school or program that has been proven to increase student enrollment, there's no better time to offer one than now! Click here to schedule a call with one of our ISA specialists and get your ISA program up and running today.
Although every effort has been made to provide complete and accurate information, Meratas Inc. makes no warranties, express or implied, or representations as to the accuracy of content contained herein. Meratas Inc. assumes no liability or responsibility for any error or omissions in the information contained herein or the operation or use of these materials.