Income Share Agreements: Terms, Incentives, Risks

The traditional education model is broken.

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🔍 Problem

Schools get paid whether or not students succeed.

💡 Solution

Income share agreements (ISAs) allow students to pay for school from future earnings. Repayment depends on student success.

There are aligned and misaligned ISAs. Aligned ISAs link the success of schools to the success of students. Misaligned ISAs resemble traditional loans by shifting downside risk to students.

Terms vary. And the devil is in the details.

ISA terms may consist of a minimum salary for repayment, a repayment cap, salary percentage and a forgiveness period. 

Misaligned ISAs may exacerbate the problem. For example, an ISA with no salary minimum and no forgiveness period. 

🏁 Players

Schools (offering ISAs)

• Lambda School
• General Assembly
• Flatiron School
• App Academy
• Pathrise
• Kenzie Academy
• Purdue University
• University of Utah
• Colorado Mountain College
• Lackawanna College

ISA Providers

• Align

ISA Platforms

• Edly
• Vemo
• Lumni
• Blair
• Avenify
• Leif

🔮 Predictions

• Companies will partner with (or create) schools to influence the talent pipeline. (See Kaiser Medical School)
• Students using traditional loans will prefer schools that offer aligned ISAs. Aligned incentives translate into better student results.
• Only students pursuing high demand skills will have access to aligned ISAs. Requiring shared risk removes the moral hazard of offering expensive loans that are unlikely get repaid.
• The best interview preparation and salary negotiation resources will emerge around schools with aligned ISAs.
• Special interest groups will lobby to keep ISAs unregulated. See payday loans for hints at how this will play out.
• Investors will push misaligned ISAs with high payment caps, low salary minimums and nonexistent ISA forgiveness periods.
• The IRS will treat ISA payments like student loan interest payments.
• ‘Promising’ students will be offered lower salary percentage payback terms than others.

☁️ Opportunities

• Develop an aptitude quiz to help students pick a vocation
• Become an investor on ISA platforms
• Make an ‘ISA vs Loan Calculator’ to help students decide which route to take (See Purdue Comparison Tool)
• Publish a list of ISA programs from best to worst based on interest alignment
• Create an ISA program around a high-demand skill

😠 Haters

“This is predatory.”
Some would say the same thing about traditional loans. Most schools get paid whether or not students succeed. ISAs tend to spread risk between student and school. Traditional loans shift downside risk to students.

“Students that make more, pay more.”
Perhaps students make more because interests are aligned. Can we separate these outcomes? Attend a traditional school if you think so.

“This is indentured servitude.”
This is a loaded term and inaccurate. Both ISAs and traditional loans can be formed under predatory terms.

🔗 Links

1. Income Share Agreements (ISAs) — James Gallagher
2. How Income Share Agreements Work — Austen Allred
3. Are ISAs the Solution to Student Debt? — a16z
4. Income share agreements: A solution to medical school debt? — Jordan Hughes
5. New Kind of Student Loan Gains Major Support. Is There a Downside? — Kevin Carey
6. The Ultimate Guide to Income Sharing Agreements — Robert Farrington
7. Life Capital — Erik Torenberg