Income Share Agreements: College affordability option gaining ground
Brian Edelman is President of Purdue Research Foundation.
Beyond freezing tuition and lowering the cost of textbooks and room and board, Purdue University and Purdue Research Foundation continue to look for every way possible to send graduates into the world with no or reduced debt obligations.
In 2016, Purdue became the first major U.S. research institution to offer Income Share Agreement to its students through the Back a Boiler – ISA Fund program, which allows students to “work their way through school once they’re out of school.” Purdue did this in partnership with Vemo Education, whom we chose because of its leadership and staff, and their extensive experience in higher education finance.
The Purdue Income Share Agreement (ISA) is designed for students who have exhausted federally subsidized loans and provides an alternative option to Parent Plus or private loans by funding a portion of their education with an agreement to then pay a portion of their future income for a predetermined period of time. The amount of post-graduation payments are dependent on the amount of total funding the student received and their major. For more information, visit our comparison tool.
With U.S. student debt cresting at $1.36 trillion in 2016, we believe Purdue’s Back a Boiler program is right program at the right time. An ISA allows students to use their expected forward income to help finance today’s education investment. The student does not need their parents’ or co-signers’ balance sheet or income to help finance their education, just the desire for an education that will improve their future career prospects and the will to make it happen.
To date, there are 759 contracts with students enrolled in Back a Boiler who have received funding totaling $9.5 million. All Purdue colleges and more than 120 majors are represented in the student participation. The top six colleges represented are: Engineering, Polytechnic Institute, Health and Human Sciences, Liberal Arts, Krannert School of Management and Agriculture.
Purdue’s ISA offers downside and upside protections for students. Should a student earn less than $20,000 in annual income, they make no payments and, with few exceptions, their financial obligation does not extend as a result of their limited income. Should a graduate earn exceptionally more income than anticipated, their total payments are capped at 2.5 times the initial ISA funding.
The program is supported by the Purdue Research Foundation, a nonprofit that serves Purdue University, and select investors who have an interest in supporting and investing in students’ academic and future success. In this way, the risk shifts from the student to the investors, especially because graduates who are underemployed or not employed pay nothing in most cases.
Purdue’s ISA also is leading a national conversation on income share agreements. Incidentally, although student debt nationwide continues to grow – now at $1.52 trillion, Purdue student debt has decreased from a total of $183 million in the 2012-13 academic year when Daniels became president at Purdue to a total of $126 million in 2018.
Since 2016, other colleges and universities that have launched ISA programs include Colorado Mountain College, Lackawanna College in Pennsylvania, Clarkson University in New York, Norwich University in Vermont and Messiah College in Pennsylvania.
ISAs will continue to grow as an option to students and universities looking for way to make higher education more affordable and accessible.
We anticipate that the Purdue Back a Boiler – ISA Fund and other innovative programs to control costs or provide additional financial options for college undergraduates will have a long-lasting positive impact on students as they graduate and begin their professional careers.
For Purdue student comments on Back a Boiler visit Student Profiles.
Allesandra Lanza, “Alternative to Student Loans: Income-Share Agreements,” US News & World Report, 2018, https://www.usnews.com/education/blogs/student-loan-ranger/articles/2018-01-24/alternative-to-student-loans-income-share-agreements.
“Income-share agreements are a novel way to pay tuition fees,” The Economist, July 2018 https://www.economist.com/finance-and-economics/2018/07/19/income-share-agreements-are-a-novel-way-to-pay-tuition-fees