Sep 21, 2019

Paying for college with your future salary

Illustration: Sarah Grillo/Axios

Agreements in which students pay a share of their income after they graduate and secure a job are being offered at some colleges and coding schools as alternatives to traditional student loans.

What's happening: The Trump administration has discussed experimenting with federal Income Share Agreements (ISAs), and legislation to develop a legal and regulatory framework for the agreements has been introduced in Congress. ISAs are a small part of the higher education financing market and whether students will benefit from them is unknown.

  • Austen Allred, whose Lambda School offers ISAs to students, told Axios this week between meetings on Capitol Hill that oversight is needed.

How it works: Rather than pay tuition up-front, students agree to paying a portion of their eventual income back to educators.

  • There can be minimum salary requirements and limits on how many years students have to pay back their tuition.
  • For Lambda School students, tuition is $20,000. If a student opts for an ISA, they agree to re-pay 17% of their salary for two years, so long as they are earning $50,000. The payback amount is capped at $30,000 and ends after 5 years, regardless of whether the tuition amount has been covered.
  • ISAs are being offered in bootcamps, a handful of colleges and universities — including Purdue, the University of Utah and Colorado Mountain College — and through workforce development programs.

Supporters say they provide financing for students who have maxed out their aid or can't access assistance through the government system.

  • And they argue ISAs force accountability on higher education institutions because if a student can't find a job to pay back their tuition, it is a signal that the institution's programs aren't aligned to the labor market.

But others worry that because high earners effectively cross-subsidize low earners, those students have to pay back substantially more money than they would with a regular loan, notes Axios' Felix Salmon.

  • They're also concerned about the risk of discrimination, since some groups, including men, earn higher salaries out of college.
  • And it is unclear whether ISAs are financially sustainable for offerers. Allred told Wired that Lambda is "burning through millions of dollars" a month.

"We're not saying it is a superior tool to everything else," says Matt Gianneschi, COO of Colorado Mountain College, which is piloting an ISA for a few dozen students with DACA-status using philanthropic donations. (Students in the program agree to pay back the amount they borrowed, not more.)

  • "We're using it as an option for [people for] which there are none," he says.

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