In November 2020, Vemo Education held a webinar with Southern New Hampshire University (SNHU) to talk about the benefits of replacing institutional loans with income share agreements (ISAs). Martin Herrick, Regional Vice President of Sales at Vemo, unpacked the differences between ISA programs and institutional loan programs. Tim Lehmann, Vice President of Student Financial Services at SNHU, spoke about his experience working with Vemo to design and implement SNHU’s ISA program. The transcript below has been edited for clarity and length.

Martin Herrick on Institutional Loan Programs

Colleges and universities often use institutional loans to bridge funding gaps and help students graduate. These programs tend to be reflexive, with no defined goals other than to retain a few students in need.

Without clear metrics of success, it takes multiple years of repayment to know if the program was a good investment for your institution. That investment also requires financial resources and probably introduces compliance risk.

When it comes to payment performance, institutional loan programs chronically maintain a higher delinquency rate and default rate than private and federal loans alternatives do. Because institutional loans are typically the “loan of last resort,” adverse selection also comes into play. 

Regarding the servicing of institutional loans: These programs put colleges in the position of loan servicers—which is not, and should not, be a core competency of any institution of higher education. Outdated servicing reporting technology forces schools to be reactionary in their outreach, rather than proactive.

Martin Herrick on ISA Programs

An ISA is an agreement between a school and a student that provides the student up-front education funding. In exchange, the student agrees to pay a fixed percentage of his or her future income, up to a cap amount, a fixed end date, or a maximum number of payments, whichever happens first. ISAs have a variety of use cases, including enrollment, retention, and accelerated completion.

Vemo Education has a full-cycle ISA management solution. At the start of our discussions, we’ll work together to determine the program’s success metrics based on your school’s unique institution profile and outcomes. Once we have those metrics, we’ll build the design, creating a program that will help you achieve your strategic objectives. Then, we’ll provide you with our high-touch and highly personal servicing out of our call center in Tampa, Florida. We’ll interpret student outcomes data and use that information, and the feedback that we get from you, to refine the program over time.

Tim Lehmann on SNHU’s ISA Program

I work for Southern New Hampshire University, which currently has 130,000 online students. We also have a residential campus in Manchester, New Hampshire, of about 3,000 students, but all of them are remote for the fall semester. We want to offer our students a full complement of financing opportunities and really be a leader when it comes to college financing.

Two years ago, we noticed that income share agreements were starting to get more press. We wanted to see if ISAs were something that we could offer. Being new to this space, we needed to find a partner that could provide a full breadth and depth of service. As we’ve worked with Vemo, we’ve truly found that they’ve been an excellent partner for SNHU.

Our first investment in ISAs was really just to prove the concept. We found ISAs eased students’ concerns about paying for tuition right now and about going further into debt. They knew that the income share wouldn’t be detrimental to their family budget while they were in school, and that once they graduated, they would be able to make payments based on their salary.

Our staff found the ability to offer an alternative choice to students empowering. They felt that being able to offer ISAs helped them feel more engaged with their job, as opposed to simply signing someone up for a student loan.

Phase I was all about the ability to prove that we could set up an ISA program and get students and administrators to buy in. Now, we feel confident that we can move into Phase II, which is focused primarily on demonstrating the value of ISAs. We’re thinking about ways to increase persistence, drive enrollment, and reduce reliance on student loans.