Can ISAs Help Slow the Educational Debt Crisis?

With student debt projected to reach $2 trillion by 2022, traditional education financing is in a state of flux as it looks for solutions to defuse, at least in part, the looming crisis. Income share agreements – or ISAs – have emerged as one such approach to the issue. Seen as an alternative to the traditional loan, an ISA enables a student to make a deal with a college, university or another entity for upfront tuition money. In return, the student pays back a portion of their future income for a set number of years. Colleges, lawmakers and venture capitalists alike have embraced the concept.

Vocational schools and boot camps, programs that typically take less than nine months, to complete, were first to pilot the idea. Traditional universities were soon to follow with their own versions, including Purdue’s Back a Boiler program, the largest ISA in operation, advancing more than $10 million in funding to over 800 students. The Purdue Research Foundation had attracted a diverse pool of 11 investors to initially fund the ISA program.

A number of firms and organizations – many of the nonprofit variety – sponsor a direct-to-student model as well, offering income-driven repayment plans that differ from entity to entity based on organizational focus.

Because ISAs are so new, proponents believe the aforementioned approaches have been decelerated by the lack of comprehensive data and no definitive long-term track record that can help assess their value and effectiveness in helping to reduce a student’s debt burden. Many believe there is also hesitancy on the part of institutions and other organizations due to the lack of legislative clarity. As lawmakers increasingly discuss the potential of ISAs incentivizing colleges and enabling less loan risk for students, a bipartisan bill – The ISA Student Protection Act of 2019, which seeks to set a federal legal framework for ISAs to protect students from poor outcomes and lay the foundation for the market to flourish – circulates through the Senate.

As student loan debt surpasses credit card and auto debt in the coming years, your institution may need assistance in navigating the industry sector’s environment. We invite you to see our complementary article from earlier this year and visit the Schneider Downs Educational Services Industry Group. You can also contact us at [email protected].

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