Can ISAs boost access, retention, and graduation rates? Absolutely.
Katie Blot is COO of Vemo Education.
I read the same headlines that many school administrators do: College enrollments are down. Roughly two out of five students will leave their college in their first year. Graduation rates hover at around 60%.
Troubling points, to be sure. Yet there is a bright spot making headway on all of these fronts in a growing number of universities, colleges, and vocational schools across the country: Income Share Agreements (ISAs).
Quite simply, an ISA 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. (For all the specifics on how this works and more, check out our previous blog post on ISA basics.)
By minimizing the financial obstacles that stand in the way of attending, staying in, and completing college, this alternative way to aid with tuition offers a host of benefits to students. But there are equally powerful benefits to institutions—from equalizing post-secondary education access to boosting both retention and graduation rates.
Let’s take a look at some of these points.
Increasing student access
While enrollments overall may have declined over the past six years because of a smaller pool of traditional college-age students coupled with a strong economy, it’s no secret that the rising cost of a college education is a significant barrier to many.
For some, tuition is simply out of reach without considerable outside help. For others, loan aversion is driving the decision of whether college costs are worth it or not. According to a study by Vanderbilt University:
- 22 percent of high school seniors were opposed to going into debt to pay for college tuition.
- 39 percent said they were opposed to accepting a financial aid package that included student loans.
ISAs can ease these financial concerns. As a component of tuition, they reduce a student’s overall burden from the very start of the college experience to years afterward. ISAs also demonstrate an institution’s dedication to a student’s success, by linking student outcomes (e.g., finding a well-paying job after graduation) to the recovery of tuition resources—which in turn are reallocated to new students.
What’s more, ISAs offer numerous protections for students after graduation. For instance:
- Students only pay a pre-defined percentage of income each month of their payment term.
- Each student has to meet a minimum income threshold before payments even start. If a student’s income drops below this level, there is no payment obligation, protecting graduates in cases of unemployment or lower-paying jobs.
- Each ISA also has a payment cap, which is the maximum cumulative amount that an individual will ever have to pay—usually 1.0x to 2.0x the value of initial funding.
- Finally, each ISA has a payment term which is 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, the student’s obligation ends at the close of the payment window, even if the maximum number of payments in the payment term haven’t been made … a key factor that in itself may allay loan aversion (one of the conclusions of Vanderbilt study).
Taken all together, ISAs open access to a greater pool of potential students, bolstering enrollment numbers and creating an environment that welcomes a student body from diverse backgrounds.
Raising retention and graduation rates
While there are many factors that can contribute to a student’s decision not to continue at their college, it’s a sad but real fact that financial difficulties are a leading cause for students to drop out. This is hardly surprising since, according to a Princeton Review report, one of the biggest concerns about attending college is level of debt.
Not only is this a loss for the student, but for the college and society as well.
ISAs, by their very nature, can take financial pressure off students. When students don’t have to stress as much about keeping up with tuition payments or worrying about debt load, they can better focus on their studies and remain on their path. As a result, their persistence will not only improve an institution’s retention rates, but degree completion rates as well.
Giving students the freedom to succeed
I think that one of the fundamental advantages of ISAs is that they enable students to more freely choose their path after graduation. When students don’t have to chase jobs that pay higher wages simply to cover fixed debt expenses, it positions them for long-term success within their field of study as well as a rewarding post-college career.
ISAs as a component of tuition can make this possible—on top of providing greater access, boosting retention rates, and improving degree completions.
And those are goals that every institution should be interested in attaining.
For more information about ISAs and their benefits, check out:
- Article: “University of Utah announces innovative financing program to help students finish degrees.”
- Study: Understanding Loan Aversion in Education: Evidence from High School Seniors, Community College Students, and Adults