ISAs were also important in this setting because students attending the training programs don’t have access to subsidized federal loans

Income-Share Agreements

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The income-share agreement (ISA) is another mechanism that colleges and universities are beginning to employ to mitigate students’ financial risk. An ISA is a contract between a student and a college in which a student accepts cash up-front to cover the cost of enrollment in exchange for a share of his future earnings for a predetermined length of time. Advocates for ISAs, myself included, generally celebrate the potential for the mechanism to prevent borrowers from ever having to face unaffordable loan payments, because the monthly obligation is fundamentally linked to the borrower’s level of earnings. ISAs also introduce an alignment of incentives between students and colleges that, in the long run, could lead to colleges shifting their efforts to better match the goals of their students-namely, increased earnings and employment opportunities.

ISAs enjoy fervent support from advocates and vitriolic rejection from opponents, who often claim that ISAs are akin to indentured servitude. This criticism ignores the fact that traditional student loans are arguably more punitive in the case of a borrower facing lower than expected earnings and an inability to pay (and cannot be discharged payday loans without bank account in Albion MI in the case of bankruptcy).

ISAs are now offered at a growing number of colleges. The trend began with training academies, such as those that teach computer coding. ISAs were a good fit because the academies had yet to prove themselves valuable enough for students to pay to enroll. The academies could tell potential students that they would pay only if they succeeded in getting the employment outcomes they were hoping for-which is a very strong selling point. Without ISAs, they would have to take out private student loans, which charge a relatively high interest rate and lack flexible repayment plans or forgiveness provisions for borrowers who face enduring financial hardship.

Having proved their worth in training academies, it wasn’t long before traditional college and universities began offering ISAs as part of their financial-aid packages. Purdue University, led by Mitch Daniels, was the first. Since 2016, Purdue’s ISA, called Back a Boiler, has disbursed nearly $10 million in funding to several hundred students. ISA programs have also been started at Clarkson University, Colorado Mountain College, University of Utah, Lackawanna College, and Messiah College.

While ISAs still play a relatively small role in the overall picture for higher-education finance, they offer a promising new model.

Employment Guarantees

Some colleges and programs of study take a different approach to guarantee student outcomes: by guaranteeing job placement. This model is used at coding boot camps like Flatiron School, and at traditional colleges like Thomas College in Maine.

These programs typically require that students make a good-faith effort to find employment and prove that they did so to the educational institution administering the job-placement guarantee. The definition of good-faith effort varies by program but often entails applying for a certain number of positions and a willingness to relocate. Some critics have argued that the requirements are excessive and are intended to reduce the cost to the educational institution of providing the guarantee. In some sense, that’s exactly what they are intended to do. A guarantee of this nature can exist only if students, as well as institutions, are on the hook. Of course, reasonable people can disagree about what should be expected of students. In any event, these programs aren’t imposed on anyone, and students, if adequately informed up-front about their responsibilities, can make their own decisions about the fairness of the terms.

When students fail to find qualifying employment, institutions compensate them in a few different ways. Some offer help paying back loans; others, such as Davenport University, offer continuing enrollment at no cost. Since institutions can’t force employers to hire anyone, they can’t actually guarantee employment. Instead, they offer other benefits aimed to make joblessness less costly, or benefits such as continued enrollment and career counseling, which support students in their job search.