ISAs [Income Share Agreements] provide students with funding to cover their education expenses in exchange for a portion of their income once they start working. Under a typical contract, recipients pledge to pay a fixed percentage of their incomes for a set period of time up to an agreed cap. For example, a student who has $10,000 of his or her tuition covered through an ISA might agree to repay 5 percent of his or her monthly income for the next 120 months (10 years), up to a maximum of $20,000. ISAs typically also have a minimum income threshold before payments kick in; if the recipient earns less than the minimum, he or she pays nothing. This means that ISAs offer students more downside protection than a traditional loan.
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Proponents of ISAs argue that in addition to protecting students from the downside risk of not earning enough to make monthly loan payments, ISAs also align incentives between students and schools in a way that traditional loans do not. When students take out loans for education, the school gets paid whether or not the students later succeed in the job market. But if a school enters into an ISA with its students, it only succeeds if its students succeed.
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Purdue is not the only school that has recently started offering ISAs. Colorado Mountain College set up a program to provide funding for "DREAMers," immigrants who came to the United States illegally as children and therefore don't qualify for federal student loans. The University of Utah has an ISA program to help students finish their degrees when they might otherwise have to drop out for financial reasons.
ISAs have also gained traction at online skills training programs, including many coding academies such as General Assembly and Lambda School. Students receive an education in a technical subject, such as coding or user experience design, in exchange for signing on to an ISA. According to a 2019 survey by the website Course Report, 17 percent of boot camp graduates in 2019 used an ISA or some other form of deferred tuition.
I think the main thing about ISAs is about risk. Because honestly, when you look at expected payments, in many cases you're paying a A LOT more than you would if you took loans. In the article,...
I think the main thing about ISAs is about risk. Because honestly, when you look at expected payments, in many cases you're paying a A LOT more than you would if you took loans.
In the article, you can see an actual contract
He received $21,263 in reduced tuition and flight fees in exchange for agreeing to repay 7.83 percent of his monthly income for 104 months, or until he had paid back 2.5 times the amount he originally received.
That's far worse than a federal student loan, right now, assuming he has a decent job out of college.
But the better part is that the worst case for student loans is... being saddled with a bunch of loans accruing interest that you can't declare bankruptcy with. While the worst case with an ISA is that you have no income, so you don't have to pay anything.
Basically the best case for loans, that you get a career and can pay your loans, is far better than ISAs. But the worst case for the ISA is better than the loans.
At the same time, I think it's really disguised how godawful the amount you might end up paying really is vs loans, because the numbers are somewhat disguised.
This looks bad but the crucial difference is that you only need to pay it if you're making money. Rather than comparing it to a loan, you should compare to insurance. You always lose money on...
This looks bad but the crucial difference is that you only need to pay it if you're making money. Rather than comparing it to a loan, you should compare to insurance. You always lose money on insurance payments if you don't make a claim. That's what it's for, to reduce risk.
There aren't many ways to buy insurance for "what if I don't get a good job?"
Another comparison is to progressive taxation. The people who do well pay for the people who don't.
From the article:
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I think the main thing about ISAs is about risk. Because honestly, when you look at expected payments, in many cases you're paying a A LOT more than you would if you took loans.
In the article, you can see an actual contract
That's far worse than a federal student loan, right now, assuming he has a decent job out of college.
But the better part is that the worst case for student loans is... being saddled with a bunch of loans accruing interest that you can't declare bankruptcy with. While the worst case with an ISA is that you have no income, so you don't have to pay anything.
Basically the best case for loans, that you get a career and can pay your loans, is far better than ISAs. But the worst case for the ISA is better than the loans.
At the same time, I think it's really disguised how godawful the amount you might end up paying really is vs loans, because the numbers are somewhat disguised.
Yeah, I was surprised they mentioned Lamba School. This articles says:
Doesn't sound very good to me.
This looks bad but the crucial difference is that you only need to pay it if you're making money. Rather than comparing it to a loan, you should compare to insurance. You always lose money on insurance payments if you don't make a claim. That's what it's for, to reduce risk.
There aren't many ways to buy insurance for "what if I don't get a good job?"
Another comparison is to progressive taxation. The people who do well pay for the people who don't.