Income Share Agreements: What You Need to Know
By: Lori Fimoff
If you’re looking into tech education programs, it’s likely you’ve come across schools that market income share agreements (ISAs) as a way to pay. In this post, I’ll talk through exactly what an income share agreement is in the context of tech education, and what you need to know about ISAs before enrolling in a bootcamp.
In researching options for learning to code, you’ve probably noticed that learning tech skills doesn’t always come cheap. Coding bootcamps can cost tens of thousands of dollars — a number that’s hard to digest, especially if you already spent tens of thousands of dollars on a college degree.
Wouldn’t it be great if you could learn tech skills without paying any money up front? That’s where income share agreements, or ISAs, come into play. With an ISA, you don’t have to start paying for your classes until you get a job. That means they can be a gamechanger for those who want to learn digital skills and are unable to afford it.
But before you go out and enroll in the first school you can find that offers an ISA, you should understand that these types of agreements can get complicated, and the specific terms vary greatly depending on the school.
What do I mean by complicated? And how do you know if an ISA is right for you? In this post, I’ll walk you through everything you need to know about income share agreements and whether or not they’re a good idea for you when it comes to learning to code.
Table of Contents
- What are ISAs and how do they work?
- Some possible advantages of ISAs
- Risks and disadvantages of ISAs
- How to know if an Income Share Agreement is right for you
- Alternatives to income share agreements
What income share agreements are all about
In the simplest terms, an ISA allows you to learn skills now and pay later. It’s a contractual agreement between the student and the school that works like this:
- The student receives funding for their courses
- In exchange, the school receives a percentage of the student’s income once they land a job
Seems pretty simple, right? Well it gets a bit more complex when you start diving in deeper. The way ISAs work in practice depends on a lot of factors that vary from school to school, including: the percentage of the student’s income the school takes, the total cap on the amount that needs to be paid back, and the repayment time frame. I’ll get into more about that below.
Although ISAs have only started becoming popular recently, they’re actually not a new concept. According to the Atlantic, the idea of ISAs has been around since at least the 1950s, which is when economist Milton Friedman outlined the concept in an essay. Yet, as the Atlantic explains, “ISAs were rarely implemented until the past few years, as student-loan defaults spiked and schools sought to offer other ways to pay.”
One of the first ISA programs to come into practice was a poorly-designed one at Yale in the 1970s, which ended in 2001. In 2016, Purdue University became the first institution to offer ISAs since Yale’s attempt. Purdue paved the way for more and more colleges to follow suit, and now over 60 colleges and coding bootcamps use ISAs. Schools like General Assembly, Flatiron School, and Hack Reactor are all on the growing list of bootcamps offering alternative ways to pay to learn tech skills.
ISAs might be growing in popularity, but it’s still worth looking into the ethics of income share agreements, which can put a huge and sometimes unexpected financial drain on graduates who can least afford it. Let’s dive in.
Some possible advantages of ISAs
Now that you have a better understanding of what an ISAs is, let’s go over some of the pros of using one.
Brett Downs, web developer and founder of Haro Helpers, explains,
The biggest advantage is that it [an ISA] opens up coding to the lower economic scale students who usually can’t afford the education on their current income and/or with the help of their family—opening up doors for them that are usually locked.
Students who want to join a bootcamp and don’t have $20k to pay upfront now have a way to do so that doesn’t involve taking out a traditional loan. Since you can never be sure whether or not you’ll land a job after you complete your program, an ISA gives you a bit of a safety net — you only pay when you become employed.
Plus ISAs create accountability for the schools that offer them. If a school doesn’t make a profit until their students land jobs, that gives the school more incentive to be invested in their students’ careers and create a strong program that will make their students successful.
Zakiya Smith, the strategy director of Lumina Foundation and former senior policy advisor for education in the Obama administration, puts it like this: ISAs are the school saying, “‘We believe in our programs, we believe in our education’…It’s essentially colleges putting their money where their mouth is.”
Students love income sharing agreements because emotionally they de-risk the decision of joining a bootcamp. For many, it’s a big risk to leave your job, and spend thousands of dollars on a bootcamp. Deferring this based on your ability to be employed after graduating a boot camp mitigates financial and emotional risk.
Joining a bootcamp is never a decision to be taken lightly. How can you be sure it will work for you? Is it worth the cost and worth uprooting your life? How do you know which one you should pick, especially when placement rates and job guarantees may not be what they seem at first glance?
With an ISA, students can have a sense of added security.
Risks and disadvantages of ISAs
All of that said, having a sense of security doesn’t necessarily mean an ISA is a smart or safe financial choice for all students. Yes, ISAs expand bootcamp accessibility to tech education programs. And yes, they make joining a bootcamp, without fully knowing whether or not you’ll land a job, feel safer. But when you begin to take a closer look at these agreements, you may find some surprising details wrapped in misleading marketing.
High interest rates could mean paying more than you expect
In the state of New York, schools aren’t allowed to charge students different amounts (pdf) of money for the same program. That means that schools with ISAs aren’t able to receive different amounts of money from students after they’re hired. This rule levels the playing field in terms of the dollar amount students will have to pay back.
But outside of New York state, ISAs are not very regulated. Because of that, students are not protected. For instance, ISAs aren’t required to offer advantages like forbearance or hardship deferments that traditional loans offer, which protect students who are unable to pay.
In this CNBC article, Julie Margetta Moran, a fellow at the Roosevelt Institute explains that because ISAs are not loans, schools can charge higher interest rates than many states allow for traditional loans. In that case, students end up paying even more money than if they were to take out a federal loan.
Mark Kantrowitz, publisher of SavingForCollege.com, breaks down the cost well in the CNBC article. Let’s say that under an ISA, a student receives $30,000 for tuition upfront, and then pays 12% of their income over the course of 10 years. When the student gets a job, let’s assume their starting salary is $50,000. If they receive a 2% raise each year, under this contract, the student would end up paying back $65,700. “‘That’s the equivalent of an interest rate of 18.4%,’ Kantrowitz said,” whereas the federal student loan rate is only around 5%.
18.4%! If ISAs are marketed as a better solution to student debt, the numbers don’t always add up. That discrepancy is something that schools offering ISAs and companies like Vemo Education, an ISA broker, probably don’t want you to figure out.
According to this Washington Post article, Vemo created a platform to compare private student loans, federal Parent Plus loans, and ISAs — but the data is inaccurate. The Student Borrower Protection Center and the National Consumer Law Center filed a complaint with the Federal Trade Commision saying that, “the comparison tools use misleading information about the repayment terms for Parent Plus loans, inflating the cost of borrowing and making ISAs look more attractive. They also say Vemo uses outdated, low starting salaries of graduates at the colleges offering ISAs, making ISAs appear cheaper to repay to understate costs.”
The complaint further claims that Vemo’s estimate of a student’s income growth during their repayment period is incorrect, making traditional loans look more expensive.
In the article, Seth Frotman, the executive director of the Student Borrower Protection Center says there’s “‘irrefutable evidence’ that one of the largest income-share providers ‘is just openly lying to consumers. It’s hard to argue these are simple mistakes when there are so many of them.’”
As a prospective student, it’s important to closely analyze repayment numbers before committing to a program—and make sure you’re not swayed by deceptive marketing.
Do income share agreements really set you up for success?
Let’s look at another example:
Lambda School has recently come under fire for misleading advertising. According to Vincent Woo, a journalist and founder of the software company CoderPad, Lambda’s homepage previously read, “‘We don’t get paid until you do, so we’re in this together, from your first day of classes to your first day on the job.’”
Woo spoke with students who acknowledged that they trusted Lambda because the school wouldn’t earn a profit until the students did.
But Lambda was earning a profit before their students did. Lambda doesn’t actually own all of the ISAs it offers to students. Woo explains, “Wired reported in August 2019 that, ‘For about half of the ISAs, the company sells the rights to a portion of its returns to investors; in return, it gets cash up front.’”
So much for not making any money until students do.
Lambda’s homepage messaging has changed since Woo reported on them back in February. But when I spoke with Woo, he cautioned students about signing an income share agreement with a school that has put out false claims and has documented problems with its curriculum model. No school has a perfect curriculum, but if a program seems to be promising you a job, or your tuition payment hangs on you getting hired, you want to be confident the lessons will totally prepare you for a job.
And another important factor to consider? A Hechinger Report article notes that ISAs could disproportionately affect people of color and women, “and even exacerbate race and gender and wealth gaps.” According to the article, “some education experts argue that financial aid is meant to level the playing field and help generate economic mobility, not burden the most vulnerable.” It’s worth asking if ISAs ultimately have a net positive outcome for the students who rely on them.
How to know if an income share agreement is right for you
It’s clear that in some situations, ISAs can offer benefits for students. But for many people, the promises ISAs make fall short. So how do you know if taking the ISA path to learn to code is right for you? Here are some factors you should consider to help you decide.
Are you able to pay for the cost of the program upfront?
If you don’t have the funds to pay for courses, an ISA can be one of only a few options to pay for your studies. This is especially true if you have your heart set on an expensive bootcamp, where you’d need $15k – $20k to enroll. But you need to make sure you fully understand all the terms offered by the ISA.
1. Is there a minimum salary you need to make before paying back the money?
With most ISAs, you won’t need to start paying the school until you have a job and are earning a certain amount of money. With General Assembly’s Catalyst ISA program, for instance, you don’t need to pay back your tuition until you’re earning at least $40,000 (no matter where you live or what the cost of living is).
2. Is there a cap on what you pay back?
Some ISAs cap at a certain amount and/or after a certain period of time. Thinkful has students pay 15% of their income for three years with a repayment cap of $28,000. So if you end up at a job with a high income, you’ll never have to pay back more than $28,000 — though that still may be a higher amount than you expected to pay.
3. Does the ISA offer a grace period before you need to begin paying the tuition back?
Know when you’ll have to start making payments. Some schools offer more generous grace periods than others.
4. What’s the potential difference in cost if you took out a traditional student loan instead?
Break out your calculator! This Forbes article offers a great example to help you figure out the math for yourself, which is the only way you’ll have an accurate comparison.
5. Does the bootcamp make you accept your first job?
Some bootcamps will make* you accept the first job you get offered, but taking your first offer may not always be in your best interest. Maybe the job seemed promising when you applied, but you later realized that it’s not the best fit. Or maybe you’re not happy with the salary you’re offered. You don’t want to find yourself in a situation where you’re forced to take a position you’re not comfortable with.
This is especially true if you feel you’ll find yourself in an unsafe environment at work. For instance, if you’re a person of color or LGBTQ+, or are in another underrepresented group in tech and a company doesn’t have protections in place for you, you would not want to be forced into working there.
* Be sure you know what it means for a bootcamp to “make” you accept a job too. Does it mean your whole tuition is due upfront? How will they know if you’ve been offered a job or not? Will they be involved in your hiring process? These are important questions to ask before getting involved in an ISA.
Is the school a good fit for you?
Besides simply understanding all of the stipulations behind an ISA, you also want to make sure that the school is a good fit. As Woo warned, you can’t trust a school and the strength of its curriculum simply because they’re offering an ISA. So take a look at external reviews of the program or try to connect with students and alumni to learn about their experiences.
You’ll want to make sure that the school not only offers a strong curriculum, but also that the curriculum, instructor style, and level of support align with how you learn best.
What are your goals?
Finally, consider why you want to learn to code in the first place. Do you want to find a full time job in tech after you complete your courses? Or are you after something different? And how certain are you that tech is right for you? Before agreeing to an ISA, it’s smart to have some certainty that you enjoy working in tech and want to start a technical career path.
And not everyone who wants to learn tech skills is looking for a brand new career. Perhaps you want to start coding as a side job or you want to learn for fun. Or maybe you just want to get your feet wet and see if tech is really the right career for you. In those cases an ISA program would not be the best option.
Alternatives to income share agreements
If paying for a coding bootcamp is not a possibility right now, and ISAs aren’t the right path for you either, don’t worry! Income share agreements are far from the only option.
There are a ton of courses available online where you can start learning to code for free. Check out Udemy, Codecademy, or even our free Coding Camp here at Skillcrush, where you can easily begin to master the basics without having to open your wallet.
Another option is to look into paying for one-off courses or enrolling in more affordable programs like the ones we offer. This option is ideal for those who want access to in-depth classes and a supportive learning community, but don’t want to pay high bootcamp prices.
ISAs can be an option for some prospective students, but they’re not right for many applicants. As long as you do your research and educate yourself about all the options available to you, you’ll be able to make an informed decision about the path that’s right for you.