As the cost of higher education rises, schools and skills training programs are seeking new financing options to offer their students. Income Share Agreements (ISAs) are one method winning the attention of investors and education providers alike.
If you’re not familiar with ISAs, here's the basic idea: rather than paying tuition upfront, students pay back a portion of their income after graduating and landing a job. If a student doesn’t earn a minimum, agreed upon salary, their payments are paused until they do. Coding bootcamps have taken to the model by storm, with many relying on ISA agreement as their most popular tuition-financing option.
ISAs are different from 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 pre-tax salary after graduating until the debt is settled. Most colleges also 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 private loans and debt. Before you offer an Income Share Agreement it’s important to take several factors into account, so we’ve compiled a list of things you should do before creating your own ISA program!
1. Ensure That an ISA is Right for Your Program
Colleges tend to use ISAs to address some strategic goal around accessibility or opportunity. That's why you see such a difference in Income Share Agreements from college to college.
Some colleges may only offer ISAs to cover a certain portion of the student's financial aid needs (such as the last two semesters of their senior year or only for certain majors that may need that kind of aid more). Income Share Agreements can also be helpful for adult students who have exhausted their Title IV funding or those who would have a higher interest rate on a private loan.
An Income Share Agreement could potentially not be a good fit for your program. In order to evaluate whether or not an ISA may prove useful to your program, take a look at your current financial aid options. Do they fit the needs of your students? Or do you need a way to make the course more accessible to more students? Is there a gap in your current financial aid offerings that an ISA would be able to fill?
Take all of these factors into consideration when deciding whether or not an ISA program might be right for your school.
2. Know the Basic Ins and Outs of ISAs
Our mission at Meratas is to make Income Share Agreements as widely available as possible so that everyone can benefit from them.
Income Share Agreements can potentially be confusing for many students. ISAs are still a fairly new financing model for most people and are relatively unknown. In fact, a 2017 American Enterprise Institute study of 400 college and high school students and parents found only 7% of students and 5% of parents even knew ISAs existed. Many people have no idea what an Income Share Agreement is let alone how they work.
Because of that, colleges need to be careful in how they market ISAs and how they describe them in comparison with other tools to make higher education affordable.
Transparency with Income Share Agreements is important because ISAs are not for everyone. Students should be taught and be familiar with their payment cap, minimum income threshold, and their payment window because depending on their income they could be paying back differing amounts throughout their ISA contract. If you’re interested in reading more about ISA terms check out the Meratas blog.
3. Have a Part of Your Admissions Team Dedicated to Running the ISA Program
It’s important to have a couple of people on your admissions team familiar with Income Share Agreements and how your specific ISA program is structured. There will be times when the student loses his or her job and their ISA needs to be put into deferment. The Meratas team is always more than willing to help you with any questions you may have about your terms, but it’s still important to have part of your team well versed on your ISA program. Students are also strongly encouraged to speak with a financial advisor before deciding on an ISA so it’s important to know your specific terms and how much the student could potentially be paying.
4. Ensure that Your ISA Program Terms are Fair to Your Students While Being Profitable for You
Your ISA should be, of course, fair for your students, but it’s also important that your ISA is generating enough money to keep the program running, and keep your tuition from rising. Worst-case scenarios should be on college officials' minds when setting up an ISA.
Income thresholds can vary from college to college, many range from $20,000 to $40,000 per year. Income share percentages also vary and tend to fall between 1%-8%. How much students can receive also varies, and is up to the college. The University of Utah offers $3,000 to $10,000 while Colorado Mountain College offers $3,000 max per year, and Clarkson offers up to $10,000 a year.
One other thing to keep in mind is that if you're trying to create a fair set of terms across different fields of study, then you may need to vary the terms of the ISA by field of study because expected income is going to vary.
For example, the University of Utah, offers its Income Share Agreement for students in 18 majors, from chemical engineering and economics to communications and special education.
5. Know How You’ll Manage Your ISA Program
There is a lot that will go into managing an ISA program. While we have met some schools managing their ISA payments on spreadsheets, this method tends to be overwhelming and tedious. You have to keep track of student employment information, graduation dates, payment adjustments as the student's income changes, and keep track of the number of payments students have made and how many they have left.
Luckily, we at Meratas are here to help. Whether you want to be hands-on with the best ISA management software on the market, or allow our expert team to help you in the management of your program, Meratas has all the tools you need to effectively run your ISA program. Everything from student applications, to student graduation status management, and even to collections and payment tracking, Meratas has you covered.
6. Know Your Funding Source
It’s also important to consider if your school has enough funding to front the cost of an ISA until your students graduate and start to pay you back or if you will need outside funding. Meratas partners with Edly, which provides investing for ISA programs, but there are other investors that invest in Income Share Agreements to help provide access to education for promising students.
The University of Utah, for example, began its ISA with $6 million from university funds, donations, and impact investments from family foundations.
If you are self-funding your ISA program, it does involve some risk since repayment is linked to your student’s future earnings. If you have a strong career placement program for your students, this is less of a concern.
ISA programs offer your students another way of financing their education and makes your educational program more accessible to more students. Though ISA programs require some upfront work, they yield amazing results. However, you don’t have to go at it alone! At Meratas we offer ISA solutions for every step of the journey. From helping you create an ISA program based on your needs all the way through student payment collections, and everything in between, Meratas has you covered every step of the way. If you’re interested in offering an ISA to your students, check out our partner's page to get started!