One thing is certain: Income-share agreements remain a contentious idea. Below I’ll share some thoughts and raise more questions it would be helpful for education providers, policy makers, and potential borrowers to get context or guidance on.
First, a bit more on the state of play. Purdue’s program, along with several other income-share agreements, have drawn criticism from consumer-advocacy groups and from students, who argue that the tools benefit investors who put up the money but can be a bad deal, with inadequate protections, for borrowers. Supporters of ISAs, meanwhile, call them a “pay for success” approach that can broaden access to postsecondary education.
They also mention accountability. And I get why some folks — especially those with a market mind-set — see ISAs that way, as an incentive for colleges and other providers to deliver an education of value. The argument goes something like this: The better the education, the more able graduates will be to land remunerative jobs and pay back the specified share of their income. And then poorer-performing educational providers would have a harder time competing for students.
I can follow that logic, but I have a harder time with the concept of getting rich off the backs of students. I mean, really? Companies are out there promising outsized returns to potential ISA investors, like this pitch citing a 14-percent “target yield.”
While many ISA companies remain active, I wonder whether the agreements will play a big role in the future of postsecondary education. That’s not only because of Purdue’s pause and Vemo’s apparent pullback from the market, but also because of a range of other uncertainties, as a onetime provider detailed in this recent op-ed in EdSurge. Among the issues: consumer confusion and “a looming regulatory threat.”
As for consumers, it’s easy to see why they’d be confused. The duration and payback requirements for ISAs run the gamut, and there are no commonly accepted guidelines on how the terms of the agreements should be described to borrowers. Meanwhile, ISA advocates have told me that some colleges remain devoted to the approach as a cheaper way to attract students than tuition discounting or (more) enrollment-management expertise, even after the institutions subsidize students’ costs. That’s an institutional-finance calculation not often considered in debates over the role of ISAs. And it may be little discussed because there’s so little transparency on how they work in the first place.
Transparency isn’t the only thing missing from the conversation. The debate at the Jobs for the Future conference highlighted a lot of other holes:
- What evidence is there for the claim that ISAs promote racial equity?
- What disclosures in ISA contracts would help students understand the risks?
- What (kinds of) institutions are using ISAs?
Empirical national data on who’s using ISAs — broken down by race, family income, or gender — are sparse. Ditto for how much people are borrowing and how much of their income they must repay. Companies that offer these programs, especially in conjunction with colleges or providers like coding bootcamps, might have some numbers, but those are often considered proprietary, and rarely shared.
In fact, when I contacted the head of JFF’s Financing the Future Initiative, Ethan Pollack, to find out the current and potential size of the ISA market, he couldn’t tell me. “No one knows exactly how big it is,” Pollack said. The inability to answer such questions, he added, was an “indictment of my own industry” — education-policy shops — for not doing more research.
JFF did look into the equity impact of ISAs, but its study was so limited in scope that even the authors said they were presenting with “significant caveats.”
Pollack, who argued in favor of ISAs at the debate (along with Tess Michaels, the founder and chief executive of the ISA company Stride Funding), said he hopes the next research paper JFF is planning, a scan of the market, will come out this fall. The center is also collaborating with another policy shop on some deeper ISA studies.
Such research will no doubt provide some helpful baseline information. But I wonder if it will answer nuanced questions that might really matter in the real world of graduates finding work. For example, during that JFF debate, Alex Camardelle suggested studying when to require payback because, he noted, it can often take Black and Hispanic graduates longer to land a job. (Camardelle directs the Workforce Policy Program at the Joint Center for Political and Economic Studies, and his debate partner was Ben Kaufman, director of research and investigations at the Student Borrower Protection Center.)
Camardelle, arguing against ISAs, said it was “unjust and unfortunate” to claim they advance racial equity “when we have no evidence of that.”
The debate had no declared victor. But at the conclusion, the moderator, Katy Knight, president and executive director of the Siegel Family Foundation, said the discussion made her “jazzed” to support additional studies on ISAs. So if nothing else, at least maybe the cause of more research came out on top.
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