Tonio DeSorrento is Co-founder and CEO of Vemo Education.

In searching for ways to help students pay for the rising costs of postsecondary education, universities, colleges, and vocational schools have been turning to an alternative way to cover tuition: Income Share Agreements (ISAs).

The idea is simple: if a school has a financial stake in the future of its students, it has a greater incentive to prepare those students for rewarding and successful careers. ISAs enable schools to do just that, and in the past three years alone, this form of subsidizing student tuition has been adopted by dozens of public and private colleges nationwide—and come to be seen as a desirable value-add for higher ed institutions.

That said, there is still a fair amount of confusion about how ISAs work, how they can be put into practice, and how they benefit both students and institutions themselves.

To help, we’ve compiled a brief primer on ISAs, outlining some of the many ways they are well-positioned to help colleges and students further their respective goals.

What is an Income Share Agreement?

An Income Share Agreement is an arrangement where a student agrees to pay a fixed percentage of their income to their educational institution for a defined length of time in exchange for a waiver of some or all of tuition.

For a better understanding of the basic mechanics of ISAs, let’s look at some of the key terms:

  • Income Share—This is the defined percentage of income that an individual pays each month of the Payment Term (see below), established at the outset of an ISA. ISAs typically use a percentage (generally 5 to 15 percent) of income, as opposed to taxable income, so that individuals are treated equally regardless of unrelated tax benefits (such as the home mortgage interest deduction, which is unavailable to renters).
  • Minimum Income Threshold—The level of income below which an individual has no payment obligation. This protects graduates in cases of unemployment or lower-paying jobs. As long as an individual is earning above the minimum income threshold, payments are made according to the Payment Term of the ISA.
  • Payment Cap—Maximum cumulative amount that an individual will ever have to pay. Defined up front, typical payment caps range from 1.0x to 2.0x the value of initial funding, depending on the institution.
  • Payment Term—The maximum number of payments that an individual is required to make within a fixed window of time. Set at the start of the ISA, both the number of payments and the length of the payment window vary by institution. Typical terms range from 36 monthly payments for accelerated learning programs, to 108 or 120 monthly payments at some colleges and universities. An individual’s obligation ends at the close of the payment window, even if the pre-agreed number of payments in the Payment Term haven’t been made.
A winning formula for colleges

By allocating institutional resources to students for programs and degree tracks, ISAs enable colleges and universities to equalize access to postsecondary education. Not only does this free students from barriers that might otherwise impede them from attending college, but it helps minimize those same financial considerations that might cause students to drop out, boosting both enrollment and student retention rates.

More importantly, ISAs align institutional success with student outcomes. For instance, if a college successfully prepares a student to land a job after graduation, and the student does so, the institution receives its resources back sooner to reallocate to other students. It demonstrates a college’s faith in its own curricula, as well as:

  • Aligns education cost with value
  • Provides a new tool for access, persistence and completion
  • Introduces a new enrollment management tool

In short, ISAs can give institutions a range of new competitive advantages. Not only can this tuition component help recruit students, but ISAs can help:

  • Improve the mix of enrollments
  • Strengthen graduation rates
  • Help improve institutional sustainability
The landscape ahead

ISAs are being adopted by a growing number of colleges and universities—from flagship public schools such as Purdue University to small nonprofit institutions like Messiah College—to not only aid students, but to signal value as well. They are also proving to be popular in training programs, such as coding boot camps, where federal loan and grant money is not as readily obtainable.

In a few years, ISAs will become even more prevalent as a component of tuition. What’s more, prospective students may see that conditioning part of tuition on outcomes as a sign of an institution’s confidence in the education provided, creating an important new distinction for attracting students.

ISAs are positioned to change the landscape of higher education—in equalizing access, aligning education cost with value, and linking institutional success with student outcomes. And if the successes of the past few years are any indication, we believe this time will arrive sooner rather than later.

For more information about ISAs and their benefits, check out:

To learn more about ISAs and how Vemo Education can benefit your institution and student body, contact us today online, at info@vemo.local, or 703-831-7231.