Inside ISAs: Looking Toward the Future

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Written by Chelsi Chang.

In the final part of our Inside ISA series, we look further into the future of student financials. According to Forbes, the traditional student loan arena is “ripe for disruption and [Income Share Agreements] are there to make new solutions possible.” Forbes couldn’t be more correct. ISAs are, in fact, disrupting the market. In 2016, Vemo Education—the nation’s largest educational Income Share Agreement platform-provider—had one institutional partnership. As of 2019, its higher education partnerships have grown to 76 schools across the country! 

The landscape is changing. Consumers are learning more and more about ISAs every day. They are leaving misinformed conceptions at the door and embracing a new financing option for higher education. (You can read more about Chowdery’s response to ISA misconceptions here.) With Vemo Education at the helm of these changes, who better to ask about the future of Income Share Agreements than Vemo Education Chief of Staff, Shanaz Chowdery? 

If you haven’t already, refer to our first interview with Shanaz Chowdery about the ins and outs of Income Share Agreements

When discussing common misconceptions about ISAs, you mentioned that ISAs provide access for low-income students and/or students of color: Do you think because ISAs are so new, parents might be averse to them or might not understand them? I mean, people still have trouble understanding FAFSA.

I think that student financial aid and student financial aid packages are already very complex. I recently read a study by the Manhattan Institute that talked about how 28% of first-year college attendees have loans and don’t realize it—as in, they took out a federal student loan their freshman year, and when they were asked about it later, they didn’t realize they had taken it out. I totally agree with you. There is a lot to be said about the complexity of the financial aid process, and I know there are a lot of initiatives that are trying to tackle this, including encouraging families to fill out the FAFSA and even requiring it as a component of graduation, in some states. 

And yes, ISAs are very new. But that being said, one of the things we have seen in the skill-based education space is the major shift in student demand for ISAs. So a couple years ago, there were only a handful of accelerated learning providers that were using income share agreements. Fast forward to 2019, there were a number of schools that came to us and said, “I have to have an ISA program. My students are asking for it, and I’m losing students to schools who have ISA programs.” And so, the more students learn about pay-for-success financing, the more likely it is that the preferences that are shaping skill-based programming today will ultimately spread to higher education as well. 

So I totally hear you, people don’t quite understand what it is yet. But, it is only a matter of time before the same trends we’ve seen in the skills-based training provider market, where there is a ton of consumer awareness and students demand [ISAs] of their schools as a signal of schools’ investment in post-graduate success, indicates we will see similar in the traditional higher ed space. 

Do you think that ISAs should always be an option for students or do you envision a world in which ISAs fund every student’s education? 

We think student choice is important. We believe that over the last several hundred years, there has been very limited [financial] options that financial aid offices offer. You can pay cash upfront, receive a grant, or take out a loan. Our belief is that ISAs are an additional tool in the tool kit from the financial aid perspective. From a student’s perspective, what’s most important is giving students the ability to make the choice that’s right for them. We require that our partners offer ISAs alongside at least one other payment option so that students have the ability to make the choice. 

Do ISAs will change college financials (tuition rates, teacher salary, etc.)? If so, how? 

It’s intuitive that ISAs can help retain and enroll more students who need up-front funding assistance. It’s intuitive that ISAs can help students finish their degrees on time without taking breaks to earn money. All of that connects to colleges’ financials. Still, it’s a little too early to say the extent to which ISAs might be responsible for improving a college’s bottom line. Right now, we’re collecting and assessing data that will help us better understand the financial impact ISAs have at schools. We’re also focused on the larger change ISAs could drive in terms of education access.

Senator Todd Young has recently proposed S.2114: Student Protection Act of 2019 that would provide legal framework and income tax treatment necessary for the growth of ISAs. If passed, how would a bill with regulations such as this help or hurt your current business model? 

Good question! We fully support a regulatory framework to ensure ISAs are good for schools and students. This is a primary tenant of everything we do here at Vemo. In fact, we have created our own internal guardrails around ISA programs to make sure that this is always the case with every program we help to design and support. Our position is that Congress should pass sensible legislation that provides protection for students and for consumers. In addition, a legal framework should guide the work of institutions and providers, helping ensure there is a clear framework for complying with existing consumer finance protection and federal law. We are glad to see the strong bipartisan support of legislation that creates such a framework, and we think that process will be accelerated in light of this attention. 

*Answers have been edited for clarity and length.

Inside ISAs: Looking Toward the Future

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