Two Pa. Colleges Offer New Way To Pay For School; Graduates Pay From Future Earnings

By Annabelle Williams
The Philadelphia Inquirer

WWR Article Summary (tl;dr) With an “ISA” or “income share agreement”, students work with the financial aid office to decide what percentage of their future income they’ll pay, based on the projected salary for their major.

The Philadelphia Inquirer

Consider these alarming factoids:

The average student debt for a college graduate in 2017 is $37,172, according to Debt.org, a national debt relief group.

Student loan debt in America has doubled just since 2009, and surpassed $1.5 trillion earlier this year, according to the Federal Reserve.

The situation cries out for better solutions. And some colleges, such as Purdue University in Indiana, and Lackawanna College and Messiah College in Pennsylvania, are exploring new options, including income share agreements (ISAs).

Instead of paying tuition upfront, students hand over a percentage of their future income. This puts pressure on colleges to develop students for the job market, and it has the potential to ease the credit crunch bearing down on students today.

At the same time, it hasn’t been widely used yet. No universal regulations exist.

Tonio DeSorrento, CEO of Vemo, an Oakton, Va. company that administers ISAs for universities, explains that the current business model for college loans is a “misalignment,” placing all the burden on students and their families, and that colleges need to have some skin in the game.

DeSorrento said Vemo has “about 30” schools that are clients, but some have not yet publicly announced their use of ISAs. Vemo, like the colleges it represents, does not collect fees from colleges until after the students start repaying their ISAs. In the meantime, DeSorrento characterizes the 35-person company’s business model as “venture-backed.” In September 2017, the company raised $7.4 million in seed funding.

WHAT IS AN ISA?
Rather than looking back at credit, ISAs require you to look forward at projected salary by college and major and compute a rate that the student should be able to pay back. While the specifications vary by school, they generally use career data about graduate outcomes to map out future salaries. And if students graduate without a job or with a low-wage job, many schools won’t charge them anything at all.

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