Innovating financial aid for student success seems like a daunting task. But numerous recent developments in Income Share Agreements (ISAs) are offering powerful new options to colleges and universities to help students enroll in school, make academic progress, and graduate with a degree.
That was the message Co-founder and Vice President of Vemo Education, Bill Brosseau, delivered on George Mason University’s Pathbreakers program in an in-depth and case study specific interview on the nature, benefits, and future of ISAs in higher education.
An ISA, at its most basic level, is an agreement in which a student pays a fixed percentage of their income for a defined period of time after graduation in exchange for up-front tuition funding. Yet there is more to an ISA than that, as Brosseau explains: “The objective of an income share agreement is to align incentives between schools and students by connecting cost and value.”
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, as well as demonstrate a college’s faith in its own curricula.
For students, this component of tuition offers numerous financial protections. “We help create some guardrails within an ISA,” Brosseau says. “There are three ways for students to satisfy an income share agreement. They can make the total number of payments. So let’s say as an example it’s 5 percent of your income for 5 years. That’s 60 payments. A student that makes 60 payments has satisfied their income share agreement regardless of how much money they paid back to the program.
“You can also hit the total payment cap. At Purdue, their total payment cap is 2.5 x times the funding amount. Let’s say it’s a $5,000 agreement. The most anybody would ever pay is $12,500. Any time during those 60 months they make payments that equate to $12,500, their obligation has been satisfied. And there is a third component called the payment window, which is the total amount of time that a school is willing to wait to collect on an income share agreement. So we’ll wait for a student that becomes a stay-at-home parent, or loses their job or becomes disabled for some duration of time, and then we will call that agreement satisfied.”
The benefits aren’t just for students though. ISAs can help post-secondary institutions with a wide range of strategic initiatives. “Income share agreements should be thought of as a way for schools to solve challenges,” Brosseau explains. “And those challenges live across the lifecycle of enrollment management. There are enrollment challenges about demographics that you are trying to incentivize to come to your institution. There are retention goals that every school has, completion goals, and maybe there is some other social impact that you are trying to facilitate at your institution. We think that thoughtful uses of ISAs can complement each of those areas.”
Brosseau adds: “Some of our other programs revolve around retention initiatives for last-mile funding for juniors and seniors. We have programs that are used to offer summer financial aid in the form of an ISA, so we keep students on track to graduate in four years when they’ve already exhausted all of their financial aid for the academic year. So, when you think of some of those strategic initiatives, those are the types of objectives that we think ISAs, done correctly, can help solve for.”
All of this has gained momentum in just a few short years, particularly since the launch of Purdue University’s “Back a Boiler” program. But what lies ahead for the future of ISAs in 10-15 years?
“I think you’ll see schools replace large portions of their cost of attendance with income share agreements,” Brosseau states. “Some of them will be small and targeted, others will be big and bold, and replace the way schools expect to be paid. They’ll say things like ‘come here for free, pay me when you get a job.’ And if you want to look at turning a market upside down, that’s the type of statement that I think you will see from a number of schools in the near future, certainly within 10 years.”
It’s a big vision, but one that’s already started.
For the full interview, watch this episode of Pathbreakers below.