How is the ISA experience so far?
Revenue sharing agreements have become a new funding option for colleges and non-traditional education programs. They have sparked enthusiasm among those who believe that ISAs can provide a much more student-friendly form of funding. But there are also concerns that they are not, partly because this is a recent trend, and partly because ISAs are still legally in a gray area and largely unregulated.
What do we know so far from the research on how ISA programs are doing? Perhaps more importantly, how do students decide to take one and how do they fare? And how has the pandemic, which has disrupted colleges and labor markets, impacted the dynamics of this new financial experience?
These are the questions we asked in the latest episode of EdSurge Live, our monthly online discussion of Big Ideas in Higher Education. Our guests were:
- Claire Gregowicz, digital marketing manager at CoinUp who took out an ISA to follow a San Diego Workforce Partnership / UCSD extension program program;
- Andrew Hoyler, first officer at PSA Airlines and first graduate of the Back a Boiler ISA program at Purdue University;
- Ethan Pollack, director of the Finance the Future initiative at Jobs for the Future; and
- Barbara Weber, Vice President of School Operations and School Partnerships at Better Future Forward.
Listen to the conversation using the reader on this page or read a partial transcript of the highlights below, edited for clarity.
EdSurge: What are the general first impressions of students when they hear about an ISA? What do they need to make an informed decision about it?
Gregowicz: I thought it was too good to be true. I have read all the fine print, understood the [income payment] threshold and percentages, and thought, what a great idea. When I told my son about it, the very first thing he said was, “Mom, I think this is a scam. I think they’re just looking for your social security number. It was really like his first impression as someone who wasn’t really looking to go the college route and was really afraid of student debt.
Weber: At Better Future Forward, we ask students to participate in one-on-one counseling sessions with us. We talk to them about their financial assistance and make sure that they take advantage of any assistance that they can possibly receive. But beyond that, we also provide estimates for them. So if they think they’re going to earn X, and their income share percentage is Y, what will that scenario look like when they’re out of school? We believe that students are better informed to decide whether or not this is a good choice.
[Audience Question]: Students who took ISAs mentioned that there were problems that these programs were discovering. Who were these?
Hoyler: Purdue was truly one of the first universities to take the ISA program as a whole. There really weren’t any guidelines, so investors and the Purdue Research Foundation were really going blindly. Some of these issues they had to resolve were the exact amount of contract terms – which vary from student to student depending on the projected industry they are entering – as well as the percentage of monthly income that ‘they would pay every month.
I was really one of the first guinea pigs. I pay 7.92 percent of my monthly income for a 104-month term, and investors were very open with me the one time we met them at a dinner hosted by President Purdue. For someone else entering Purdue Flight School in three years, their payment deadline and percentage may be very different from mine. They could repay money to the ISA for a shorter period and even a lower percentage of their income. [Editor’s note: Purdue’s terms have, in fact, changed since Hoyler signed up for his.]
These are the things they need data on to make those decisions and work on over time. They do not have a crystal ball indicating that it is the correct percentage or it is the correct payment term. So they’re really trying to find common ground to make sure that it helps students and might have some advantages over a Parent PLUS loan or Perkins loans, while also providing a return on investment for investors.
[Audience Question]: Do ISA programs offer more student support services than you might have otherwise? In general, does offering an ISA also require providing a larger stack of other supports for students?
Gregowicz: I think it is necessary… to have someone to help me: “What can I do with the certificate now with my skills? Where can I go with this? I think it’s necessary — for student success and for ISA to be successful — to have that sort of thing.
Before COVID, my son also worked while he was on this program. His car’s transmission died, and it was a real test. I asked for help from the program and they sent us a bus pass just so he could keep working… Even this little thing made my son’s life easier so he wasn’t stressed out about it and that he can continue to focus on his lessons. Was it necessary? No. Does it help? Yes. This is a factor in the success of the ISA program.
EdSurge: Ethan, you recently wrote a white paper on “Student-Centered ISAs”. What does this mean and how can we design them?
Yellow place: ISAs are powerful tools. They can be used for good. They can be used for evil. Or they can be meant to be used for good and be accidentally used for bad. I consider them to be similar to cars – they can be very dangerous, but they can also be extremely useful.
One thing that is really important is making sure that students understand what they are signing up for. ISAs should have clear terms and information that attempt to comply as much with the truth in lending law as possible, so that comparisons can be made between ISAs and other types of financial products.
Students shouldn’t bear most of the risk either. The promise of the ISA is that the risk is transferred from the student to the vendors, be it schools, third party vendors, investors… and the design of the ISA and the operation of the ISA must be compliant. to that promise. This means limiting excessively long payment windows [and other terms].
Finally, the quality of education is important. There is a difference between education and the way you fund education. Most of the reviews I have seen of ISAs come from students who have had bad experiences, not with ISAs, but with the underlying quality of education. We certainly don’t want predatory schools to use ISAs to help them be more successful… We want to make sure ISAs enhance good schools and make it harder for bad ones to function.
EdSurge: The pandemic has impacted both colleges and job markets. How has this affected the momentum behind ISAs?
Yellow place: Many ISA funds are modeled to assume a certain financial rate of return, or at the very least financial solvency. With a recession and students who might not get the jobs the vendors thought they were getting, this calls into question some of those solvency plans a bit. If a school were to set up a fund thinking it would be solvent in a few years, it could be postponed for a few years or so.