Higher education needs a new approach to finance

Since Lackawanna College’s inception, our programs and mission have been tightly coupled with in-demand jobs in the region -- jobs that provide family-sustaining wages that can encourage economic mobility for many in Pennsylvania.

Income-share agreements are making a comeback, but are they a smart bet?

Income-share agreements (ISAs), in which students pay reduced tuition up front for a portion of their salary after graduation, are part of the new strategy to expand access, increase affordability, and reduce the risk students run in paying for college, according to Vemo Education, a company that handles income-based student-financing solutions.

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1. What is an Income Share Agreement?

An income share agreement (ISA) is a contract between a student and their school where a student receives education funding in exchange for sharing a fixed percentage of their post-graduate income for a defined period of time. Because the amount paid is based on income, payments should always remain affordable. ISAs help reduce financial barriers to education, align incentives between schools and students, and increase college affordability.

2. What are the key ISA contract terms?

ISA amount
The amount credited (funded) to a student’s account.
Income share
The percent of income a student pledges to pay after leaving their school or program.
Minimum income threshold
Students shouldn’t face hardship to pay for their education. Our minimum income threshold guarantees that students don’t have to make payments if their income falls below a certain salary level.
Payment cap
The maximum amount a student would have to pay relative to their funding amount. Many schools have a 1x cap, so that students never have to pay more than the initial funding amount.
Payment term
The maximum number of monthly payments required to fulfill a student’s ISA obligation.

3. How does an ISA program help students?

Access and opportunity
Increase college going aspirations by reducing financial barriers to education.
Use income-based financing to keep students in school.
Increase graduation rates by eliminating financial barriers to degree completion.
Align interests and signal value
Show students you care about their post-graduation success and outcomes by aligning value with price.
Reduce financial risk
By Introducing a pay it forward tuition model, allow students an option that reduces the financial risk too often associated with post-secondary education.

4. Who does Vemo work with?

We work with management teams of universities, colleges, and skills training providers to design ISA programs to improve access, retention, and completion.

5. After a student graduates, when do they start making payments? Is there a grace period?

After a student graduates, their account enters a grace period that gives them time to find a job. After their grace period ends and if their income is high enough, students start making monthly payments.

6. When does a student’s payment obligation end?

One of the most progressive features of ISA are the student-friendly protections. A student’s payment obligation ends after a fixed period of time, regardless of whether the student has paid the initial tuition funding amount or even nothing at all. This guarantees that students only pay if and when they are succeeding. Schools implement payment caps and payment windows to create student-friendly programs.

7. What happens if a student’s grace period ends but they have a low-paying job, or maybe no job at all?

The magic of ISAs is that they reduce the risk associated with paying for school so that if a student is making less than a school’s minimum income threshold or doesn’t have a job at all, they don’t have to make a payment.

8. How do ISAs help students pursue careers they're passionate about?

Because ISAs reduce the financial risk of paying for school, students aren’t pressured to pursue the highest-paying job in their field and have the freedom and flexibility to go into public service work, non-profits, and other career paths that are vital to our communities.

9. What're the student friendly protections in an ISA contract?

Schools implement many student friendly protections which include:
– Minimum income thresholds
– Payment cap
– Payment window
– Grace period
– Career flexibility