Colleges piloting income-sharing agreements to cover financial aid gaps

With more students struggling to find ways to cover college costs, institutions are testing income-sharing agreements (ISAs) designed to help ensure gaps in financial aid don’t derail students’ degree pursuits, EdSurge reports. Under ISAs, students receive a break on tuition costs in return for committing to pay back a portion of their income once employed post-graduation. Generally, the agreements include a grace period or exceptions if a graduate can not find a job or has a salary below a set threshold.

To date, the ISA model has been especially popular with coding bootcamps, allowing the programs to increase affordability while bypassing accreditation and financial aid red tape. Colleges and universities are coming from a slightly different angle, piloting ISAs with the hope of better supporting “students who have used up their financial aid options.”

EdSurge highlights five institutions’ experiences with ISAs (for a detailed summary—including each school’s ISA amounts, payment calculations and caps, eligibility, and funding model—read the full article):

  • Noting that its students are highly debt-averse and often take time off mid-college to earn enough money to resume their studies, The University of Utah has launched a five-year pilot to see if an ISA model can help accelerate completion.
  • Colorado Mountain College has focused its ISA pilot program on undocumented students, who are ineligible for federal financial aid, noting that scholarships alone often aren’t enough to cover housing and transportation.
  • “We have always seen [our ISA] program as a gap funding source,” says the program manager for Purdue University’s three-year-old Back A Boiler ISA. The program distributed nearly $2 million to 160 students in the 2016-17 academic year.
  • Inspired by Purdue’s ISA, among others, Pennsylvania-based Messiah College has shifted $200,000 from its financial aid budget to a one-year ISA pilot focused on students who have “tapped out all of their borrowing and no other financing options.”
  • Officials and trustees at New York-based Clarkson University saw its graduates’ relatively high salaries as a sign that the ISA model could be mutually beneficial. Trustees have pledged $3 million to support the program for four years.

Critics warn of potential for overpayment, advocates call ISAs win-win

Critics of ISAs, however, say the model could prove “dangerous” due to the unpredictability and potential volatility of future incomes and careers. Most ISAs include an overall payment cap, some as high as 2.5 times the original ISA amount.

Supporters, however, say the model offers a key alternative to traditional student loan debt and adds an incentive for institutions to ensure students’ future success. James Fish, chief financial officer at New York’s Clarkson University, told EdSurge he “was nervous going in and…can see some risks” but ultimately thinks ISAs are beneficial. “We have successful grads who make money, and if we properly collect on these then everyone’s a winner. They get the jobs they want, and we get the money back to use for future generations.”

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