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ISAs hold great potential for expanding access, affordability, accountability, and equity to postsecondary education; to realize it, regulators must engage meaningfully with providers to establish regulations that place learners first. A robust dialogue between regulators and ISA providers can help ensure existing law is applied to ISAs in a way that is intentional and valuable for both learners and providers.

And regulators are not the only ones with more work to do. In addition to proactively engaging with regulators, ISA providers should carefully monitor their impact by studying their internal data, regularly solicit learner feedback on the design and disclosure forms of their ISAs, and work with researchers who wish to conduct research on the ISA model and how it impacts learners and equity.

The potential for clarity on how federal regulations govern ISAs is an opportunity to recognize that regulation need not come at the expense of innovation, and can potentially even promote innovation. But to achieve this, we must ensure that a clear and thoughtful framework is adopted that prioritizes consumer protections and enables new financing models to fulfill their goal of creating a more outcomes-based, equitable postsecondary education and training system.

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Regulatory Clarity Could Transform the ISA Market | JFF

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ISAs hold great potential for expanding access, affordability, accountability, and equity to postsecondary education; to realize it, regulators must engage meaningfully with providers to establish regulations that place learners first. A robust dialogue between regulators and ISA providers can help ensure existing law is applied to ISAs in a way that is intentional and valuable for both learners and providers.

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"I always felt that my lack of higher education would prohibit me from getting a good job. At times I was even uncomfortable engaging with educated white people. I've worked since I was 15 years old, barely making ends meet. Through Climb Hire I was able to learn skills that would help me secure and land a great job.

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*PAYE assumes a 5% increase in income each year (the Department of Education standard assumption); ISAs assume a 3.8% increase each year (the Purdue calculator's standard). The standard repayment and PAYE numbers are determined with the Department's Repayment Estimator; and ISA estimates are calculated using Purdue University's comparison calculator.
Now let's say Bobby borrows much more -- $30,000. Under the standard repayment plan, his payments spike considerably. Now he'll repay $311 per month, and pay off the loans in 10 years at a total cost of $37,310. Under Pay As You Earn, his payments still start at $83--but are now capped at $311, so he'll pay a total of $46,165 across twenty years before getting the last bit of his balance ($6,089) forgiven. But with an ISA, he'll now repay 13.56 percent of his income -- $347 per month, even when he's only earning $31,000 per year. And in the end, he'll pay even more than under PAYE in total--$48,933--in the more compressed 9-year, 8-month timeframe.

Many of the existing ISA providers advertise their products as competing not with federal student loans, but with private student loans or Parent PLUS loans. And compared with those types of traditional debt, ISAs look more favorable. For instance, Purdue predicts that Bobby would likely pay slightly less with an ISA than a private loan with a 9.5% interest rate, with either the $10,000 or the $30,000 cumulative amounts borrowed. But he'd pay slightly more with the ISA than his parents would with a Parent PLUS loan -- maybe or maybe not a better alternative to those loans, which can load even lower-income parents up with tens of thousands of dollars in debt they may wind up repaying well into retirement.

Meanwhile, the field remains effectively unregulated for now. Two bills have been introduced in Congress to encourage the development of ISAs by setting a (low) minimum bar for their terms. The first was most recently introduced by Sens. Rubio (R-Fla.) and Young (R-Ind.) in February 2017; the second was introduced by Reps. Messer (R-Ind.) and Polis (D-Colo.) in June. Both bills would establish a cap on the terms that ISA providers could charge students, while clarifying some legal uncertainty to promote new entrants and more participation in the ISA marketplace.

The increasing market could be cause for concern; current entrants have opted to stick with fairly reasonable terms, but they've also been working mostly with quality institutions of higher education. If the ISA market were to expand further--to more institutions and more students--new problems would undoubtedly develop.

Problems with ISAs

If ISAs take off, it's not hard to imagine some of the problems that might develop. Students already stymied by an overly complex student aid system will have to weigh that against a new, difficult-to-understand model of financing, with minimal requirements for transparency and only a vague notion of what it means to take on a contract like the one available to them. It might lead colleges to be even less price-sensitive than they already are, since they can market "risk-free" dollars to help students fill the gaps. It could have implications for the overall federal loan portfolio, if a subset of borrowers are siphoned off to other kinds of financing. And students could find themselves locked into contracts with unfavorable terms and few consumer protections--including high monthly payment amounts, significant costs to escape the contract, and arbitration clauses that strip them of any real way to hold the ISA providers accountable. And those aren't the only problems:

Interactions of ISAs and Federal Loans

Perhaps the biggest question is whether or not ISAs really are--or will be--limited to fulfilling unmet need students have only after they borrow the maximum in federal student loans. "Top-off" funds, or the difference between the aid available to the student and the cost of attendance as defined by the institution, at least mean the amounts of ISAs will be somewhat small. But the more these providers lend, the bigger the return can be to the provider. So with the whole kit and caboodle--full tuition and fees, supplies, and living costs--potentially available to ISAs, the risks to students become substantially larger. The only way to prevent this behavior would be to require in law that students exhaust their federal student loan eligibility first, before considering or accepting an ISA. Even so, schools may see this new, less-risky form of financing as an excuse to keep costs high. Whatever your view of the Bennett Hypothesis, few private colleges are currently sensitive to pricing anyway; ISAs are likely to exacerbate that problem.

And even if ISAs were coordinated as an add-on to federal student loans, it's worth considering what that will mean for the borrower's federal loans. Income-driven repayment (IDR) plans are supposed to keep borrowers' monthly payments on their federal student loans affordable. But if the borrower has both an ISA portion of his monthly income, on top of an IDR payment owed, it could mean he's forking over an unaffordable portion of his income. It's the worst of both possible worlds.

The Added Costs of ISAs

Another major concern comes with the costs associated with an ISA. For a traditional student loan, you pay until the money is paid back (plus interest for the lender's troubles). And with income-driven repayment options for federal student loans, there's an extra safety net tacked on: Even if you don't make enough money to pay it back, loan forgiveness means there's a light at the end of the tunnel. But with ISAs, borrowers could easily wind up paying well over what they would with a federal student loan for the same amount of upfront money. Even while both options offer students protection from the risk of low or no earnings after college, the examples above prove the protections in an ISA may come at a higher cost.

And to get out from under the contract--because the borrower wants to aggressively scrimp and save to pay down the debt and focus on other expenses like buying a house, for instance, or because he inherited some money--the costs are even higher. While some may see this as a feature--or at least a given--with ISAs, it's more of a bug, relative to how federal student loans function. With federal loans, there's no penalty for paying his loans back early, or more quickly; and he'll even ultimately owe less than if the loan had stretched out over time. With an ISA, he'll probably repay significantly more--2.5 times the original amount he received for the education, in Purdue's program.

Risk of Discrimination and Predatory Lending

Last--but certainly not least--ISAs have a problem at their core that the federal student loan program has sought to solve: discrimination. The private market is inclined to irresponsible and unfair borrowing to low-income students and students of color, in particular. And we don't have to look far into the past to see that: Sallie Mae faced a class-action lawsuit over its "subprime lending" behavior toward for-profit college students.

Without question, ISAs don't have to discriminate against students; concerned providers have thought about this issue and want to avoid those problems. Yet structural discrimination is reified by the ways in which ISA contracts are structured. Many of the current plans take into account past credit history, which may disadvantage students of color. People of color and women are both more likely to enroll in programs that lead to jobs in low-earning fields and to earn less in the workforce than their white and male peers in comparable jobs; so ISA contracts that rely on institutional earnings could wind up charging them more. And one can only imagine that students attending minority-serving institutions like Historically Black Colleges and Universities (HBCUs) would have far worse terms than a similar non-HBCU school. Meanwhile, federal undergraduate student loans offer the same terms to all students--regardless of their credit history, their race, their programs of study, their post-college earnings, or their genders.

Conclusion

Regulators, take note. These are the kinds of problems likely to pop up repeatedly and persistently over the coming years, as ISAs become more prevalent and more ISA providers enter the marketplace. ISAs might be designed to reduce the risk to students of taking on debt in the event their degree doesn't pan out or they don't earn enough to afford payments. But those same goals conflict with investors' own interests--and you don't need to be a history major (paying back 11.76 percent of your income, thanks to a $30,000 ISA through Purdue) to know the investors are typically the ones who win out in those cases.

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Income Share Agreements Aren't a Solution to Student Debt

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PAYE assumes a 5% increase in income each year (the Department of Education standard assumption); ISAs assume a 3.8% increase each year (the Purdue calculator's standard). The standard repayment and PAYE numbers are determined with the Department's Repayment Estimator; and ISA estimates are calculated using Purdue University's comparison calculator.

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Though still in their infancy, income-share agreements (ISAs) already have many skeptics as well as defenders. Continued discussion and debate are needed to ensure the best outcomes, especially for students. But what exactly should we be discussing?

At Lumina Foundation, we are doing everything we can to help make affordable, high-quality postsecondary credentials available to all. ISAs could be one part of the solution, depending on what we learn from early adopters, including three promising models described in Do income-share agreements actually work to hold down college costs?

With these early ISA adopters in mind, let's consider what conditions might allow an ISA to optimize opportunities for students-and where an ISA could potentially do more harm than good. Here are 10 questions that can help us start to shape the debate.

1. Why is the ISA being offered? Every other question on this list depends on how this first question is addressed. The purpose influences the design of the program, the terms offered to students, and the potential types of investors and sources of capital.

2. Does the ISA fill a gap in our financial aid system? Colorado Mountain College launched Fund Sueños (Dream Fund) for students who cannot access federal aid. The University of Utah, grappling with students' debt aversion and extra time needed to graduate, plans to accelerate seniors' timeline to graduation. And San Diego Workforce Partnership's ISA creates a financing option for short-term, high-demand programs for students who otherwise would have had to pay out of pocket or take out a private loan. None of these programs seek to displace public aid with ISAs. Instead, they fill critical gaps that aren't being met by the public federal and state funding system.

3. How does the provider know what students need and evolve as those needs change? The three early ISA adopters (supported by Lumina) have had students involved from the start in the design of their ISA programs. Student involvement raises critical questions, such as, 'How does the ISA stack with my loans and other aid?' 'What does this contract term mean?' 'What happens if I can't pay it back?'.

4. Who will benefit the most from the ISA? From the outset, the ISA's various participants and their interests-including the provider, student, and funder-need to be clear. The provider or program responsible for designing and offering the ISA should also determine which of these interests could trump the others and under what circumstances. We have been pleased to partner with institutions that always put students first.

5. Who's funding the ISA and what are their expectations? ISAs will likely need to attract diverse capital-including philanthropic capital and/or a provider's own funds-to absorb risk for investors, subsidize transaction structuring and servicing costs, safeguard student-friendly terms, and offer an investable product. Investors may also provide on-ramps for commercial capital through credit-enhancing tools, such as guarantees. These early market-shaping activities will help inform return expectations for ISAs moving forward.

6. What third-party partners does a provider need-and at what cost? Many early ISA adopters are working with third-party servicers. Why? ISAs require financial services capacity for origination, disbursement, and collection of ISA funds. Most providers don't have this capacity and building one does not make sense for a small ISA pilot. This could change, though, if the ISAs succeeds and grows as a reliable financing mechanism.

7. Does the ISA fit into a broader suite of supports for access and completion? The University of Utah's ISA program is launching with a dedicated financial aid advisor to help all students file a FAFSA, obtain all available aid, and use the ISA to meet any last-mile financing needs. Similarly, the San Diego Workforce Partnership provides information on similar programs that may be available for free, and requires all ISA holders to meet with an advisor and then consider all options for a few days before signing the ISA agreement.

8. What role does location play? Context matters, particularly local labor market dynamics. We often hear that national data on student debt, repayment, and default fail to account for different standards of living across the country. These early ISA models may shed light on how to use data to set reasonable terms such as minimum wage thresholds for specific communities and occupations.

9. What legal framework should govern? This is already a central question in the ISA debate. No matter the legal framework, ample, universal consumer protections for students must be in place. ISA providers can help with this by establishing a high bar, rather than waiting for minimal standards to be defined by policymakers.

10. What does success look like? Too much of today's conversation about ISAs is theoretical and not grounded in actual outcomes. We can address this gap by assessing early adopters for impact on educational, financial, and social outcomes for students, providers, and investors.

Answering these questions can inform both the prospects for ISAs and the broader higher education affordability debate. In fact, ISAs are connected to ongoing policy and practice discussions about return on investment (i.e., affordability plus employability), outcomes and accountability, postsecondary business models, and public-private partnerships. These connections are an essential reason to keep an eye on ISAs.

At Lumina, we believe it's best to start small in exploring ISAs before attempting to launch them at scale. This will give all of us time to better understand the experiences and outcomes of early ISA adopters. We'll use those lessons-alongside these 10 questions and many more-to find the best solutions for those who matter most: the students.

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Ten questions for the income-share agreement debate

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Though still in their infancy, income-share agreements (ISAs) already have many skeptics as well as defenders. Continued discussion and debate are needed to ensure the best outcomes, especially for students. But what exactly should we be discussing? At Lumina Foundation, we are doing everything we can to help make affordable, high-quality postsecondary credentials available to all.

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It is as important as ever to match financial metrics to impact and build a consensus around a set of shared fundamentals. Below, I introduce a comprehensive ISAs dashboard for investors, schools, and operators to consider when investing, launching and servicing programs, and evaluating the financial and impact performance of ISAs.
Enthusiasts praise ISAs as the most exciting innovation in higher education finance. Lawmakers, schools, policy advisors, and investors, compliment ISAs for being a much-needed alternative to private student and Federal Direct PLUS loans. They welcome the proposed pending legislation in Congress - the ISA Student Protection Act. They recognize that ISAs, when done right, could help tackle issues of affordability, quality, and student outcomes, as well as create pathways for good jobs that address labor shortage and future of work needs.

Today, ISAs are making inroads in traditional four-year colleges and becoming the preferred funding method in vocational, job-focused training programs, primarily coding bootcamps, though also among flight training, software-sales, commercial driver's license, nursing, and life sciences programs. At large, ISAs appear to have the potential to play a key role in building a more effective, efficient, and equitable educational system.

As a result, many actors in the ISA ecosystem say they try to "do well by doing good". Many of them really do and are working hard to scale ISAs with integrity. They are bringing greater transparency, legitimacy, and discipline to the ISA space. They are better aligning schools' incentives with students' needs and interests. They are offering investors an opportunity to support specific student outcomes and achieve financial returns alongside impact. At the same time, when getting past the headlines, others seem to be just jumping on the bandwagon of "impact washing"- using marketing jargon to entice and engage students, schools, and investors without delivering real impact or providing sufficient depth and details of how impact will be met.

Need for Shared Fundamentals

I am mindful that arguments over how to make, measure, and manage the biggest impact with ISAs can be as passionate as the 2020 U.S. presidential election. Nevertheless, it seems to me that it is as important as ever to match impact to financial metrics data so that the various actors in the space can evaluate whether ISAs are meeting their objectives or not, and ensure that in fact ISAs have the potential to build a more sustainable higher education financial system.

Let's take, for instance, one of the biggest challenges that schools and operators face in order to accelerate adoption of ISA programs: securing flexible and diverse funding for ISAs at scale. Investors from across retail, HNWI, family offices, hedge funds, foundations, schools, pension funds, endowments, philanthropists, and wealth managers, are watching the space considering how their different risk-adjusted financial targets can be met. Not surprisingly, amongst the questions potential investors raise, they highlight ISAs limited track record, illiquidity and perception of additional risk. They also question the strength of ISAs in the wake of an economic slowdown and/or low-interest rate world (read more here). More sophisticated investors, particularly investment committees of professional and institutional investors, are strongly debating the intentionality and signals from ISA players.

At large, potential investors want to measure and compare their investment in the ISA space through a common set of financial and impact performance accounts. Whilst there is clearly no need to create a different set of performance and impact metrics for the various investors sitting across the return spectrum, why are existent investor materials and capital calls for investing into a "diversified, higher-yielding, less correlated pool of assets and cash flow streams" not accompanied by rigorous targets and practices for managing and measuring impact?

ISAs Financial and Impact Dashboard

To start the conversation about how we talk about financial and impact performance of ISAs, below are three dimensions of an ISA dashboard for investors, operators, and schools to consider.

First, from an investment viewpoint, a detailed overview of the ISA portfolio and financial performance data from all underlying income share agreements, as per the respective Risk Management & Collection policies in place.

Second, from a student position, and reported anonymously on an aggregate basis, a demographic and household characteristic profile upon ISA application, combined with survey information that sheds light into students' attitudes towards debt, financial acumen, and employment desires and expectations. Subsequently, during studies and post-graduation, an overview of the impact of ISAs on the student cohort with regards to student success, employment and future of work, economic mobility, and financial and medical health.

Third, from an academic institution perspective, a profile of each school with itemized tuition and financial aid figures, overview of income share agreement program, eligibility criteria, and key terms.

Investment (as per risk management, servicing & collection policies)

Portfolio Overview (e.g. total ISAs originated to date (USD), total number of disbursed ISAs, total number of disbursed ISAs students (by city, state, country), total number of schools & departments & majors offering ISAs (by city, state, country), etc.)
Financial Performance Data

Parameters(e.g. weighted average income share (percentage of income), weighted average contractual duration (number of consecutive monthly payments required), weighted average remaining duration (number of consecutive monthly payments to fulfill contract), etc.)

Status (e.g. total ISAs funded amount disbursed (USD) by repayment status, total ISAs outstanding balance amount (USD) by repayment status, percentage of late/overdue ISAs by stage, estimated illustrative yield based on ISAs funded amount disbursed, expected yield based on ISAs outstanding balance amount (USD) in performance book, ISA administration and servicing fees, etc.)

Students
Profiles (upon ISA application)

Demographics (e.g. percentage of ISA students by gender, ethnicity, race, veteran status, who are disabled, who are the first generation of their family to attend college, who are DACA students, who are international students, who depend on an ISA to fund their degree, etc.)

Debt Aversion (e.g. attitudes towards borrowing money, taking loans, use of credit cards, etc.)

Financial Literacy (e.g. financial know-how to make informed and effective decisions)

Employment Preferences and/or Experience (e.g. for undergraduate, percentage of ISA students working during the semester, avg. salary per month during the term or summer (by city, state, country), post-graduation employment industry preference, etc. For graduate students, avg. pre-study annual salary (by city, state, country), employment by industry, post-graduation employment industry preference, etc.)

Household Characteristics (e.g. percentage of ISA students who have dependents (children/spouses), percentage of ISA students who support their family beyond direct dependents, parent's willingness to potentially take on debt incurred by the student, etc.)

Community Outputs (during studies and post-graduation)

Study Success (e.g. percentage of ISA students who graduate, percentage of ISA students who graduate on time as per admission date, etc.)

Employment / Future of Work (e.g. avg. and median gross base starting salary by major and graduation year, percentage year-on-year salary increase by major and graduation year, percentage of ISA students who believe their vocational/college/graduate degree has significantly increased their ability to obtain and retain a job, employer profile by company size (e.g. start-up, SMEs, large corporate or <50 FTE, 50-500 FTE, >500 FTE), etc.)

Economic Mobility (e.g. percentage of ISA students who return to their home city, state, country post-graduation, who have lived in more than one U.S. domestic location post-graduation, who have lived in more than one international location post-graduation, etc.)

Financial Health (e.g. percentage of ISA students who could not have financed their education without an ISA, who had a poor or no credit score at the time the ISA was approved, who attained good or prime credit score after X year(s) of ISA on-time payments, etc.)

Medical Health (e.g. percentage of ISA students who have received information from their school about health topics, who are seeking or had sought counseling, who respond when asked to rate their overall health, etc.)

Academic Institutions (Four-year Colleges & Vocational Schools)

Overview (e.g. total number of undergraduate and graduate students (by in-state, out-of-state, and international), average standardized test scores (i.e. SAT, ACT, GMAT, GMAC by majors), admission application stages and timelines, total cost of attendance, including tuition, student fees, estimated room & board and personal expenses, available scholarships and announcement timeline, etc.)

Eligibility Criteria (e.g. list of majors with start, end, and graduation date, years of study (i.e. freshman, sophomore, junior, senior, graduate), average age at admission by year of study and majors, expected class size by year of study and majors, historic graduation rates by year of study and majors, historic employment rates by year of study and majors, etc.)

Key Terms (e.g. total ISA amount available, tuition plus living expenses (by majors, year of study), total ISA tuition only amount available (by majors, year of study), total ISA living expenses amount available (by majors, year of study), income share (percentage of income), duration (number of consecutive monthly payments required), extension (number of months if income below minimum annual income threshold), grace period (study period plus up to X months post-graduation), minimum annual income threshold (USD), payment cap (number of times of total amount financed a student would pay), etc.)

Shifting to Action

Let's not wait for ISAs to grow to size and scale (or fail to do so) and claim impact through the rear-view mirror. The industry has moved on from thinking that just because a product or service operates in the education space, it naturally has impact. It is time to walk the walk. The opportunity is ripe for ISAs to pioneer and leap over student loans as the financing tool that can generate the most positive, measurable social impact alongside a financial return (on a per dollar basis).

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#isas #incomeshareagreements #acuerdodeingresocompartido #education #highereducation #educationfinance #studentfinance #studentloans #college #studentdebt #futureofwork #workforce #workforcedevelopment #alternativeinvestments #fintech #inclusivegrowth #impactinvesting #impactinvestment #sustainableinvesting #sdgs #sustainabledevelopmentgoals #impinv #socialimpact

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Measuring and Managing Financial & Impact Performance of Income Share Agreements (ISAs)

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It is as important as ever to match financial metrics to impact and build a consensus around a set of shared fundamentals. Below, I introduce a comprehensive ISAs dashboard for investors, schools, and operators to consider when investing, launching and servicing programs, and evaluating the financia

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You will have a 6-month grace period after graduation. The 6-month grace period will start at the beginning of the next month. So, if you graduate on May 15, your grace period will begin on June 1.

Once that grace period has ended and you have a job that pays $30,000 or more annually, you will start paying 4% of your annual salary each year. That will then be calculated into monthly payments that will for you.

For example, let's say you get a job that pays $45,000 (gross) annually. 4% of $45,000 is $1,800.00 per year, which will be a monthly payment of $150. Good news - someone will calculate this for you!

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You will have a 6-month grace period after graduation. The 6-month grace period will start at the beginning of the next month. So, if you graduate on May 15, your grace period will begin on June 1.

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WE ARE INVESTING IN OUR STUDENTS Your college degree is in reach, but money is an obstacle. That's where Invest in U comes in. This innovative income share agreement pilot program is designed to fill funding gaps so you can finish your degree and launch your professional career.

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THE DIFFERENCE

A typical income share agreement (ISA) is just another financing option for students. The CIB is more than that-it's a holistic, career-based approach to job training meant to catalyze economic mobility at scale. Five key features underpin the CIB:

People-centered design. The CIB is designed for unemployed or underemployed people who face barriers to education, including ineligibility for private loans or scholarships for non-Title IV programs, poor credit history, justice system involvement, and immigration status-barriers that disproportionately affect people of color.

Wraparound support services. The CIB provides a suite of wraparound support services, including career coaching, emergency aid funding, and benefits enrollment assistance, to help students address real-life challenges so they can focus on their training.

Consumer-friendly repayment terms. Students have access to consumer-friendly repayment features like payment caps, fixed repayment terms, and downside protection, all of which are outlined in a Student Bill of Rights.

Impact-first capital. Impact-first capital covers program costs and wraparound support services. These dollars come from philanthropically motivated impact investors through vehicles like our UP Fund. Governments can also use CIBs without the participation of impact investors to create pay-it-forward funds to train future workers.

Aligned incentives. An outcomes-based contract focuses the project on student success and creating incentive alignment among students, training providers, and impact investors.

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A typical income share agreement (ISA) is just another financing option for students. The CIB is more than that-it's a holistic, career-based approach to job training meant to catalyze economic mobility at scale. Five key features underpin the CIB: People-centered design.

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We offer income share agreements (ISAs) to students who participate in select college access and success programs in Minnesota, Wisconsin, and Illinois.

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We are a 501(c)(3) nonprofit leading a movement in education finance reform. We offer income share agreements (ISAs) to students who participate in select college access and success programs in Minnesota, Wisconsin, and Illinois. Everyone should have the chance to succeed without worrying about how to afford school, how to afford future payments, or whether their hard work and financial sacrifice will pay off.

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With one million defaults on student loans every year, and $1.6 trillion in outstanding student debt, it's clear the US is in desperate need of innovative funding models in higher education. Income Share Agreements, or ISAs, stand to provide a promising alternative to high-risk student loans, as they better align the interests of students, schools, and lenders. In an ISA, students pay no tuition upfront, only repaying the education provider once employed--in essence, funding today's educational opportunities for a fixed percentage of tomorrow's income, within a set window of time. In other words, an ISA is an equity investment, whereas a student loan is a debt burden. ISAs thus serve as a viable choice for students seeking to finance their education, and in many cases, increase access to higher education by helping students afford programs not eligible for federal financial aid. Despite the potential of the ISA model, a lack of regulatory clarity has limited its adoption. To reach that potential, the ISA market needs guardrails that both protect students and encourage investment in the space. In this policy brief, the authors provide an overview of ISAs and examples of ISAs currently in operation. They then explore guardrails that are essential to effective ISA legislation and analyze the ramifications of these provisions for students, education providers, and other ISA market participants. In so doing, the authors hope to empower policymakers as they unlock the power of a financing tool that has the potential to revolutionize higher education. [Contributions to this report were made by Alana Dunagan.]

Clayton Christensen Institute for Disruptive Innovation. 425 Broadway Street, Redwood City, CA 94063. Tel: 650-887-0788; e-mail: info@christenseninstitute.org; Web site: http://www.christenseninstitute.org

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ERIC - ED603097 - Unlocking the Potential of Income Share Agreements (ISAs) to Tackle the Student Debt Crisis, Clayton Christensen Institute for Disruptive Innovation, 2019-Aug

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With one million defaults on student loans every year, and $1.6 trillion in outstanding student debt, it's clear the US is in desperate need of innovative funding models in higher education. Income Share Agreements, or ISAs, stand to provide a promising alternative to high-risk student loans, as they better align the interests of students, schools, and lenders.

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Modern Income-Share Agreements in Postsecondary Education: Features, Theory, Applications

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42 Pages Posted: 8 Dec 2019 Last revised: 29 Apr 2020 Date Written: 2019-12-06 An income-share agreement (ISA) in postsecondary education is a contract in which students pledge to pay a certain percentage of their future incomes over a set period of time in exchange for funding educational program expenses in the present.

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Send me more info Enroll in an ISA

Application deadline is September 9, 2021. Enroll today!

Why Income Share Agreements?

ISAs are an opportunity to provide education that advances careers to San Diegans who struggle to pay these costs upfront. We believe they are an equitable alternative to student loans that expand access to getting the skills needed to fill in-demand jobs.
Send me more info

What are Income Share Agreements?

ISAs are an alternative financing option for students to get an education. There is no upfront cost, instead you agree to pay a fixed percentage of your income for a fixed period of time if you make at least $40,000. No income = no repayment.
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About the Program

We partner with UC San Diego Extension to offer 9-12 month certificate programs in high-demand, high-growth occupations. While you learn technical skills through the coursework, our team guides you through our job readiness road map to build the professional skills and tools that will launch your new career in tech.
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Enroll in an ISA

Student Stories

Business Intelligence Certificate

Prior to joining the Workforce ISA program, Ari worked as a stagehand and wasn't getting the hours or pay he needed to support his family. His goal was to break into the tech industry, and through the ISA program he was able to do just that. He landed a job as a Configuration Specialist at MedImpact Healthcare, offering him a large salary increase and new career.

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Front-end Development Certificate

Ellie worked in administrative roles but dreamed of becoming a web developer. She earned a Front-end Development certificate and developed a Github portfolio during the ISA program. With six months still left in her certificate program, she got a job at Petco as a web developer and started earning over $60,000 a year.

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Business Intelligence Certificate

After losing her job in the real estate sector, Najie decided to earn a Business Intelligence certificate and pursue her interest in the tech industry. During the program (and a global pandemic), she found herself unemployed and experiencing homelessness. The ISA team helped her with finding short-term employment and housing. After graduating, the team introduced her to MedImpact, where she got a job as a configuration specialist earning over $48,000 annually.

Business Intelligence Certificate

Chris had worked at the San Diego Zoo for 14 years and without any formal education he found it very hard to advance in his career. Looking for ways to advance his career opportunities, Chris earned a Business Intelligence certificate through the Workforce ISA Fund. He landed a job as a Business Intelligence Analyst at Community Housing earning $14 an hour more than what he was previously making at the Zoo.

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The Workforce Income Share Agreement Fund - San Diego Workforce Partnership

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Send me more info Enroll in an ISA Application deadline is September 9, 2021. Enroll today! ISAs are an opportunity to provide education that advances careers to San Diegans who struggle to pay these costs upfront. We believe they are an equitable alternative to student loans that expand access to getting the skills needed to fill in-demand jobs.

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Income Share Agreements, or ISAs, offer the potential for helping low-income workers access a broader range of training opportunities to increase their skills and raise their incomes. The idea is simple: rather than paying for training upfront, or taking out a loan that must be paid back whether or not training leads to well-paid work, the worker pays no upfront tuition costs but commits to an ISA - to pay back a portion of their income for a set period to the training partner, but only if and when they obtain a new job above a minimum income threshold. In addition to providing a financing opportunity, ISAs can also help serve as a quality control and accountability mechanism. If training doesn't produce its promised outcome - a path to a well-paying job - then the training provider will not be paid.

ISAs are gaining interest as accelerated training programs grow, particularly in the technology industry, to prepare workers to secure technical roles that require significant skills training. Jobs like these can move people who are struggling into stable, well-paying careers - provided people can afford the necessary training. At the same time, the payment terms of ISAs are critically important; depending on how they are structured, an ISA could be an affordable way to access expensive training, or they could end up costing the worker much more than anticipated.

NYC Opportunity has partnered with the Economic Development Corporation and the Department of Small Business Services to explore ISAs, and how they can be used to help low-income New Yorkers improve their skills and attain economic stability. As part of this exploration, we have announced a Request for Expressions of Interest (RFEI) to create the Talent Financing Fund. The fund will help low-income New Yorkers to enroll in accelerated training programs, such as coding bootcamps. The fund will also offer additional support services, which may include career coaching, financial counseling, and access to emergency funds.

The RFEI seeks responses from organizations qualified to (1) run a high-quality accelerated learning program with career-oriented outcomes; (2) launch an ISA model and service an income-based payment option for accelerated learning programs; and (3) deliver support services for low-income students.

Responses to the RFEI are due February 14, 2020. Read more about it here.

Read more about ISAs here.

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Looking for Partners to Work on "Income Share Agreements" as a Route to Well-Paying Jobs

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Income Share Agreements , or ISAs, offer the potential for helping low-income workers access a broader range of training opportunities to increase their skills and raise their incomes.

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8 Pages Posted: 15 Nov 2019

Date Written: November 7, 2019

Abstract

The growth and preservation of Human Capital impacts our quality of life. Education is the dominant factor for increasing human capital. Recently there has been a wave of financing opportunities that utilize risk-sharing features. These Income Share Agreements are gaining traction as a popular form of education financing, offering students more flexibility in meeting their financial obligations than traditional student loans. In this white paper we describe the general structure of the Income Share Agreement (ISA), illustrate the advantages of ISAs compared to student loans through Expected Utility analysis, and discuss the reasons why we believe ISAs will continue to gain momentum as a preferred mechanism for funding human capital development through education.

Keywords: Income Share Agreement, ISA, Income Share Agreements, Student Loan, Risk Sharing

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income share agreements: a better way to encourage human capital creation

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Income Share Agreements: A Better Way to Encourage Human Capital Creation

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8 Pages Posted: 15 Nov 2019 Date Written: November 7, 2019 The growth and preservation of Human Capital impacts our quality of life. Education is the dominant factor for increasing human capital. Recently there has been a wave of financing opportunities that utilize risk-sharing features.

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Exploring an Alternative to Student Loans: Constructing and Exploring the

Demand for an Income Share Agreement Market

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WASHINGTON, D.C. - The Consumer Financial Protection Bureau (CFPB) took action today against an income share agreement (ISA) provider for mispresenting its product and failing to comply with federal consumer financial law that governs private student loans. Better Future Forward, Inc., through its affiliated companies, provides students with money to finance their higher education, in the form of ISAs, under which students agree to pay a percentage of their income for a set period of time or until they reach a payment cap. Better Future Forward falsely represented that the ISAs are not loans, failed to provide disclosures required by federal law, and violated a prepayment penalty prohibition for private education loans. Under the CFPB's order, Better Future Forward is required to provide disclosures that comply with federal consumer financial law, eliminate the prepayment penalties, and stop misleading borrowers.

"The ISA industry has tried to evade oversight by claiming that its products are not loans," said CFPB Acting Director Dave Uejio. "But regardless of the name on the label, these products are credit and have to comply with federal consumer protections. The ISA industry cannot pretend that core consumer protection laws do not apply to their products."

Better Future Forward is a nonprofit organization based in Virginia. Better Future Forward offered consumers several versions of ISAs, under which providers advanced money to consumers to finance their education expenses. In exchange for the advanced money, the borrowers promised to make payments based on a percentage of their income until they repaid a defined amount, or a specified period had elapsed.

Falsely Representing Education-Finance Products

Falsely representing that its ISAs are not loan products and do not create debt: Better Future Forward deceived student borrowers, telling them that the agreement by which they had to pay a percentage of their income over a certain threshold in exchange for funds for their post-secondary education was not a loan and did not create debt.

Denying consumers information necessary to fully evaluate their financial options: By operating as if their agreements were not "credit" or "private education loans," Better Future Forward failed to provide disclosures for private education loans as required by federal consumer financial law.

Subjecting consumers to fees or penalties for early repayment or prepayment: Better Future Forward imposed unlawful prepayment penalties on its private education loans.

The CFPB found that Better Future Forward falsely represented that its ISAs are not loans and do not create debt, in violation of the CFPA. The organization also failed to give certain required disclosures and imposed prepayment penalties on private education loans, in violation of TILA, Regulation Z, and the CFPA. The violations involved the companies' student-loan-origination activities, which included:

Stop deceiving consumers about the nature of their products: Better Future Forward must stop stating that its ISAs are not loans or do not create debt for consumers.

Provide consumers disclosures about their products as required by federal consumer financial law: Better Future Forward must provide disclosures required by the Truth in Lending Act and its implementing Regulation Z for closed-end credit, including disclosures about the finance charge, the amount financed, and the annual percentage rate, as well as disclosures required for private education loans.

Not object to bankruptcy discharges: Better Future Forward must continue its practice of not objecting to any discharge of a student's ISA in bankruptcy, including not contesting that repaying a student's ISA would present an undue hardship.

Reform its ISA contracts: Better Future Forward must not impose a prepayment penalty on a private education loan and, for certain ISAs, must recalculate the payment caps to eliminate the prepayment penalty.

Under the CFPA, the CFPB has the authority to take action against institutions violating federal consumer-financial laws, including those engaging in unfair, deceptive, or abusive acts or practices. The consent order issued today requires Better Future Forward to:
Read the CFPB's consent order
The CFPB did not impose financial penalties against Better Future Forward after considering its responsible conduct, namely that it demonstrated good faith and substantial cooperation beyond that required by law.

The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.

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CFPB Takes Action Against Student Lender for Misleading Borrowers about Income Share Agreements | Consumer Financial Protection Bureau

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WASHINGTON, D.C. - The Consumer Financial Protection Bureau (CFPB) took action today against an income share agreement (ISA) provider for mispresenting its product and failing to comply with federal consumer financial law that governs private student loans.

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76 Pages Posted: 25 Sep 2019 Last revised: 12 Aug 2020

Date Written: February 25, 2020

Abstract

Income Share Agreements (ISAs) have been proposed as an efficient financing scheme for higher education that could also enhance postsecondary outcomes. Yet, there is not enough knowledge about ISAs in education. This paper combines administrative and survey data on students who were offered an ISA by a Latin American provider and offers several novel findings on (1) the factors that explain student ISA take-up and (2) students' perceptions of ISAs. First, students' perceptions of ISAs, age, relationship status, and family income are important determinants of the take-up decision. Second, students who took ISAs expect higher future income, but have a worse academic performance than non-takers, suggesting that adverse selection might be a challenge for the large-scale implementation of ISAs. Third, while ISA takers and non-takers do not significantly differ in terms of their attitude towards risk, students are less likely to take an ISA if they perceive it to be riskier than a loan. Lastly, students perceive that ISAs increased their persistence and allowed them to stay enrolled at their preferred institution and major. These findings are relevant for the design and policy evaluation of ISAs both in the US, where legislation has been introduced and ISA programs are proliferating, and in other countries considering reforms in higher education financing.

Keywords: Income Share Agreements, Higher Education, Student Loans, Human Capital Contracts, Latin America

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international evidence on income share agreements: perceptions and characteristics of isas recipients

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International Evidence on Income Share Agreements: Perceptions and Characteristics of ISAs Recipients

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76 Pages Posted: 25 Sep 2019 Last revised: 12 Aug 2020 Date Written: February 25, 2020 Income Share Agreements (ISAs) have been proposed as an efficient financing scheme for higher education that could also enhance postsecondary outcomes. Yet, there is not enough knowledge about ISAs in education.

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An income share agreement (ISA) is an innovative financing tool used by education and training providers that ties the amount that learners pay to the amount of money they earn after completion. Students pay a fixed percentage of their income (an "income share") over a defined period, and students earning below a specified threshold make no payment.

As is often the case with emergent models, there are opportunities and risks associated with ISAs. This is why it is vital that policymakers and regulatory agencies provide clear definitions, parameters, and consumer protections for learners.

These videos-through learner experiences-provide an explanation of ISAs: what they are, how they work, and how they can be utilized in education and training contexts.

Through our engagement, JFF seeks to clarify the issues, help identify guardrails that ensure responsible innovation and experimentation, and catalyze new equitable ISA models and policies-all with the goal of ensuring the needs of learners remain at the center.

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An income share agreement (ISA) is an innovative financing tool used by education and training providers that ties the amount that learners pay to the amount of money they earn after completion. Students pay a fixed percentage of their income (an "income share") over a defined period, and students earning below a specified threshold make no payment.

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Status of this research at Lumina?

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This summer marks the third anniversary of year-round Pell grants, where students can receive extra Pell funding to enroll in summer classes and complete their programs faster. Summer Pell is a critical resource, but it doesn't begin to solve all of the affordability issues facing today's students, including federal aid restrictions for many student populations, the pressure of costs beyond tuition (such as childcare), and lack of financing options for quality workforce training programs.

These challenges help explain why so many students struggle to afford higher education, even when enrolled in a relatively inexpensive public institution. We urgently need more and better financing options. And we can't rely solely on federal and state policymakers to come up with new tools, given the glacial pace of legislating in Washington and the difficulty of making national policy decisions that work effectively in every context.

Which brings us to income-share agreements (ISAs), which have been hailed as a way to " fix American's broken student loan system" and decried as " Wall Street's Potentially Predatory Alternative to Student Loans." The truth? We just don't know yet.

But there are three early adopters of income-share agreements that have caught our attention:

Colorado Mountain College (CMC)-a college district with 11 campuses serving about 18,000 students a year-launched Fund Sueños (Dream Fund), designed for in-state students with work authorization who are ineligible for federal aid. It's intended to be particularly helpful for those with DACA status.

San Diego Workforce Partnership's (SDWP) Workforce ISA Fund provides a financing option (where there often is none) for high-demand, high-wage programs at the University of California-San Diego Extension. All four short-term programs at the school are ineligible for federal loans and have completion rates of more than 80 percent. SDWP counsels prospective students on several enrollment and financing options in addition to the ISA options, including community college programs that may offer similar coursework and grant aid.

The University of Utah's Invest in U program targets seniors who tend to "stop and start" enrollment to reduce costs and avoid student loans, taking a longer time to graduate. Only about 30 percent of the university's undergraduates take on loans, compared to 65 percent of students nationally who graduate from public and private nonprofit colleges. Through Invest in U, a student can take out up to two separate ISAs, one for fall/spring and one for summer. In that scenario, the student can pay the loans at the same time (i.e., pay 5.7 percent of salary for 65 months) or consecutively (2.85 percent of salary over 130 months).

Here's a summary of these programs' income-share agreement terms:

Colorado Mountain College

In-district tuition and fees $2500/year; total cost of attendance ~$15,000 - 17,000

Up to $3,000

4%

60 months

$30,000

1x ISA amount

San Diego Workforce Partnership

Tuition $6,500

Up to $6,500

6-8%

36 - 60 months

$40,000

1.8x ISA amount

University of Utah

Tuition for in-state residents is $8,952; total cost of attendance ~$19,000 - $25,000

$3,000 - 10,000

2.85%

65 months

$20,000

2x ISA amount

Recently, Lumina Foundation funded studies of each of these programs to determine their legal, educational, financial, and post-graduation effects. With so many ISA models coming online, why is Lumina interested in these three?

All are already low-cost programs with good outcomes for graduates. This means the total amount of funding provided through an ISA is modest and less risky for students in the longer term.

All have student-friendly terms-low income-share rates, reasonable minimum income thresholds, and clear payment caps-as well as other supportive services.

All included students in their design process.

All fill a gap that existing public financial aid systems don't cover. The two public institutions are specifically designing their ISAs as one possible solution for addressing costs beyond tuition.

All of them have a special focus on adult learners and/or students of color-populations on which Lumina focuses much of its work.

All three raised philanthropic capital to reduce costs for students and to position the fund for long-term sustainability as graduates pay back into the fund when they enter the workforce. A lot of learning can come from this for the philanthropic community.

None of the institutions relies on its ISA program to support its own financial health. This eases any urgency to build a profitable ISA program and allows officials to focus on student-friendly design, evaluation, and learning.

We see Colorado Mountain College, San Diego Workforce Partnership, and The University of Utah as important partners in helping us understand how income share agreements actually work before anyone attempts to scale them up. The lessons we learn from these ISA pioneers will help us identify some key questions that, when answered, can help resolve the ISA debate. We welcome ideas on these questions and plan to share what we find.

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Do income-share agreements actually work to hold down college costs? We're finding out.

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This summer marks the third anniversary of year-round Pell grants, where students can receive extra Pell funding to enroll in summer classes and complete their programs faster.

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This is part of a paper series exploring the role that consumer protection laws play in safeguarding borrowers from the harms posed by ISAs. Authored by legal experts at the forefront of consumer law, the papers look at how ISAs fit into the existing consumer financial protection framework, highlighting a strong legal foundation for policymakers and regulators as they seek to oversee these products and protect students.

This paper examines the industry argument that ISAs are "not credit," and that therefore federal consumer protection laws do not apply. Analyzing the numerous federal laws that define "credit" and protect consumers in credit transactions, this paper lays out how ISAs share many characteristics with traditional student loans and how these financial products fall squarely within the consumer financial laws which broadly apply to credit products.

While ISAs have not yet been subject to enforcement actions by state and federal authorities, they are agreements through which consumers get money, in exchange for a promise to repay that money in the future. This and other features of ISA repayment put them squarely within the coverage of existing federal consumer protection law. As ISAs grow in prominence, it is critical that parties to these agreements must be subject to regulation and enforcement under current law.

Read the Report: Credit By any Other Name: How Federal Consumer Financial Law Governs Income Share Agreements

Read the Blog: This is not the Credit You're Looking for: Why Jedi Mind Tricks Won't Work for ISAs

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Credit By Any Other Name: How Federal Consumer Financial Law Governs Income Share Agreements - Student Borrower Protection Center

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This is part of a paper series exploring the role that consumer protection laws play in safeguarding borrowers from the harms posed by ISAs. Authored by legal experts at the forefront of consumer law, the papers look at how ISAs fit into the existing consumer financial protection framework, highlighting a strong legal foundation for policymakers and regulators as they seek to oversee these products and protect students.

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Income Share Agreements (ISAs) are financing products that require students to pledge a portion of their future income in exchange for money to pay for college. ISAs have been touted by venture capitalists and Silicon Valley as a solution to the student debt crisis, but these products pose serious risks to students and could violate a number of federal and state laws.

The SBPC is working with partners to analyze and expose the potential harm ISAs may cause to borrowers and raise awareness among policymakers and institutions.

ISA Work Spotlight:

This paper series explores the role that consumer protection laws play in safeguarding borrowers from the harms posed by ISAs. Authored by legal experts at the forefront of consumer law, the papers look at how ISAs fit into the existing consumer financial protection framework, highlighting a strong legal foundation for policymakers and regulators as they seek to oversee these products and protect students.

ISAs in the News:

Will Income Share Agreements Be the Next Payday Loans?
Despite marketing that claims ISAs are "not a loan," lack an interest rate, and align the interests of the college and the student, ISAs operate like traditional private loans. They are often funded by private investors, require repayment in all but the most dire circumstances, and include draconian consequences for default.

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Income Share Agreements - Student Borrower Protection Center

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Income Share Agreements (ISAs) are financing products that require students to pledge a portion of their future income in exchange for money to pay for college. ISAs have been touted by venture capitalists and Silicon Valley as a solution to the student debt crisis, but these products pose serious risks to students and could violate [...]

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ISAs vs CIBs: From Social Finance

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For a certain corner of higher ed, income-share agreements have emerged as the most exciting innovation to finance a college degree.

The contracts obligate students to pay back a portion of their future income for a set number of years rather than take out student loans to cover unmet financial need. The concept was first tested in short-term programs like coding boot camps but increasingly is being pushed as an option for students at traditional colleges as well.

The annual Education Finance Conference in Washington, D.C., this month attracted nearly 200 attendees for a series of sessions focused mostly on ISAs, a 40 percent increase in turnout from the year before.

Sheila Bair, the president of Washington College and former commissioner of the Federal Deposit Insurance Corporation, told attendees her preference was to "ditch debt completely" in favor of a federal ISA program. And Senator Todd Young, an Indiana Republican, told the crowd that ISA supporters have shifted opinion on financial products "no one wanted to go near" until recently because they were viewed as predatory financial instruments.

"Let's demonstrate that it works," said Young, who has co-sponsored legislation to establish a new regulatory framework for ISAs. "And it will work -- people will love it."

The rhetoric and the headlines often suggest that income-share agreements are a key part of the solution to staggering amounts of student debt. But the organizations that are making ISAs a reality on the ground for college students can be more circumspect about the new model.

"Nobody has an income-share agreement problem at a college. They have some other problem they're trying to fix," said Tonio DeSorrento, CEO of Vemo Education.

Vemo has worked with dozens of colleges to set up ISA programs, although only a handful have publicly announced the programs so far. Students enrolled at two- and four-year colleges that participate in federal aid programs still make up just a sliver of the larger marketplace for income-share agreements. Most contracts are still awarded at alternative providers like General Assembly. To the extent that's changing, Vemo is playing a big role.

The company's work with those institutions begins, DeSorrento said, when college leaders identify some kind of problem they want to address by offering a new financing mechanism. That might include low graduation rates for debt-averse students or limited financial support for students who face barriers to federal aid.

The company plans a customized program with the college as client, training financial aid staff, tracking enrollment and eventually collecting student payments after graduation. DeSorrento describes the programs as "targeted success and aid initiatives."

"We design income-share agreement programs to complement some identified strategic objectives," DeSorrento said.

For example, at the University of Utah, one of the only large institutions to offer an ISA, leaders zeroed in on a six-year graduation rate that badly lagged peer institutions.

Colorado Mountain College last year launched its income-share program, Fund Suenos, to provide undocumented students access to financing for their degrees. Because those students aren't eligible for federal aid, their options are limited to state support, private scholarships or assistance from their college.

At smaller institutions like Messiah College, which is located in rural Pennsylvania, administrators see income-share agreements as a tool for a segment of students to fill gaps in aid after they've reached limits on federal grants and loans.

David Walker, vice president for finance and planning at Messiah, said ISAs give financial aid officers another tool when they might otherwise have limited resources to help students cover gaps in aid. The typical example is a fifth-year senior who is self-supporting and doesn't have other financial aid options besides additional scholarships from the college.

"We're able to start a revolving, pay-it-forward type program," Walker said. "Students will help fund the viability of this program for future Messiah students."

When the program officially began at Messiah last fall, nearly half of the roughly 40 students who participated were freshmen. Walker said for some of those students, the option to take out an income-share agreement factored into their decision to enroll.

Because Vemo designs income-share agreements to fit each institution, repayment obligations vary. DeSorrento said tailoring the ISAs to each college's goals is an advantage of the company's model.

"There's no temptation to misalign when success is measured at the school level," he said. "Our schools are choosing success metrics, and we're helping achieve those."

ISA proponents say that approach creates accountability for colleges that doesn't exist in the federal student loan program. But consumer advocates say those incentives aren't nearly enough, absent strong oversight.

"Good intentions are really important," said Joanna Darcus, a staff attorney at the National Consumer Law Center. "Impact is really important, too."
The Direct-to-Student Model
While Vemo is looking to make inroads with colleges on income-share agreements, a former D.C. policy wonk is working to offer ISAs directly to students in a handful of Midwest cities -- Chicago, Milwaukee and the Twin Cities. Kevin James, CEO at Better Future Forward, targets the contracts to low-income students who are enrolled in a short list of colleges with relatively strong student outcomes.

"We're trying to create funds that are anchored within communities and that are accessible to every low-income individual and student within that community," he said.

Better Future Forward, a nonprofit, provides ISAs by working with a handful of college access and success organizations in those cities. To be eligible, students must be enrolled full-time and in good academic standing, but otherwise the financing is awarded on a first-come, first-served basis. Participating students typically have maxed out their federal student loans and are not likely to qualify for private loans to cover unmet costs, James said.

"What we've observed is that a lot of students work an incredible number of hours. We've encountered many working 20 to 30 hours a week while enrolled full-time," James said. "Some are working for a term, then going to school for a term. We're trying to help them close those gaps."

Like every other ISA program, Better Future Forward has a short track record so far. The first cohort of students received financing from the group's income-share agreements in fall 2017. Across all programs, there has been a 95 percent student retention rate, James said. But the size of the program is still quite small -- there were 73 students in the first cohort, and roughly the same number received ISA financing last year.

James was previously a research fellow at the American Enterprise Institute. Before that, he was an aide in the office of then U.S. representative Tom Petri, a Wisconsin Republican, where he worked on legislation to make income-driven repayment universal.

He said the concept of basing repayment on a student's income should play a larger role in shaping the federal student loan system -- an idea that has found some support among both liberal and conservative policy thinkers. But James said the ISA venture is designed to allow the private sector to back students on a bigger scale and in a sustainable way.

"We're looking to harness philanthropic and investment capital that really wants to make a big difference and get its money back in a sustainable way," he said.

Carlo Salerno, vice president for research at Campus Logic, said neither approach to income-share agreements is looking to fully address the problem of higher ed financing. (Salerno previously launched a platform that allowed college students to market themselves directly to investors for financial support and has been an early proponent of the income-share model. CampusLogic announced a partnership with Vemo in June.)

"They're looking to cover some unmet need, to help somebody cover that last mile," he said. "They're trying to figure out a way to help people solve a problem to the extent financing is a barrier to entry or completion."
Growing Scrutiny
In part because ISAs are so new, there's little evidence from most programs to demonstrate their effectiveness in either aiding colleges' goals or providing greater access to students. Few colleges offering the programs have had a full cohort of students graduate yet, much less enter repayment.

The Lumina Foundation announced in July that it's funding a study to measure the postgraduation effects of several income-share programs, including those offered by the University of Utah, Colorado Mountain College and the San Diego Workforce Partnership.

Julie Margetta Morgan, a fellow at the Roosevelt Institute, said the lack of comprehensive data on outcomes for income-share agreements is just one of several areas where information and research about the contracts is lacking. It's not clear, she said, how many colleges enforce mandatory arbitration provisions or when a student is considered to be in default according to the contracts. It's also not clear what the typical ISA holder earns after college or what their repayment obligations look like, she said.

The institute is studying the terms of ISA contracts at various colleges where those details are available.

"The problem from a consumer-advocate perspective is that ISAs look a lot like a traditional loan. When we step back from the rhetoric about them, they look a lot like a traditional credit product," Morgan said. "And yet they're treated differently."

The loudest voice raising concerns about ISAs has been Senator Elizabeth Warren, the Massachusetts Democrat vying for the party's 2020 presidential nomination. In June, Warren and other congressional Democrats asked several colleges that have partnered with Vemo to provide documents on their promotion of income-share agreements as well as on student protections.

DeSorrento said Warren's interest in scrutinizing ISAs is understandable. There should be accountability for what happens in those programs, he said.

"We generally agree strong consumer protections are needed," he said. "People should be looking out for students so that they're not taken advantage of."

However, there's considerable disagreement about proper federal oversight. Vemo supports bipartisan legislation introduced by Young in July that would put ISAs under the jurisdiction of the Consumer Financial Protection Bureau. Consumer advocates, though, think there is also a role for the Education Department to play in oversight of the contracts. And Darcus argues the Senate legislation essentially carves out exemptions in existing regulations for income-share agreements.

For its part, Vemo says it's taking a cautious approach as interest in ISAs grows. Vemo has turned down dozens of colleges that have expressed an interest in starting a program, DeSorrento said. Some can be ruled out because their programs have poor results, or their tuition is too high.

"We're not on some artificial timeline where we need to sign up a bunch of colleges to say we did it," DeSorrento said. "We need to do this with colleges who are not curious, but serious."

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Two emerging players on ISAs, with deliberate and different approaches

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For a certain corner of higher ed, income-share agreements have emerged as the most exciting innovation to finance a college degree. The contracts obligate students to pay back a portion of their future income for a set number of years rather than take out student loans to cover unmet financial need.

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This is part of a paper series exploring the role that consumer protection laws play in safeguarding borrowers from the harms posed by ISAs. Authored by legal experts at the forefront of consumer law, the papers look at how ISAs fit into the existing consumer financial protection framework, highlighting a strong legal foundation for policymakers and regulators as they seek to oversee these products and protect students.

This paper examines how the antidiscrimination framework underpinning federal and state fair lending laws apply to Income Share Agreements (ISAs), with a particular focus on the Equal Credit Opportunity Act (ECOA). Although ISAs have been touted as a solution to the student debt crisis, features of existing ISAs threaten to exacerbate inequalities.

Evidence suggests that in some cases, communities of color are being exploited by predatory ISA products. In addition, some features used to set terms and conditions for ISAs, such as school- or major-based distinctions, risk unnecessarily perpetuating disparities among historically underserved groups.
Read the Report: Solving Student Debt or Compounding the Crisis? Income Share Agreements and Fair Lending Risks
Read the Blog: Solving Student Debt or Compounding the Crisis? Income Share Agreements and Fair Lending Risks

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Solving Student Debt or Compounding the Crisis?: Income Share Agreements & Fair Lending Risks - Student Borrower Protection Center

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This is part of a paper series exploring the role that consumer protection laws play in safeguarding borrowers from the harms posed by ISAs. Authored by legal experts at the forefront of consumer law, the papers look at how ISAs fit into the existing consumer financial protection framework, highlighting a strong legal foundation for policymakers and regulators as they seek to oversee these products and protect students.

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HBS Podcast: Social Finance has deftly aligned incentives around skills training. By pooling public and private resources and making job placement a shared goal, the nonprofit is providing proof of concept that could scale to address workforce development needs nationwide. Co-founder and CEO Tracy Palandjian explains career impact bonds and social impact bonds.

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Joe Fuller: As the skills gap grows, students take on debt toward traditional four-year degrees that often don't leave them job ready. Short-term certificate programs, while they can deliver more relevant skills, cost upwards of $10,000. And they often require months of fulltime study. That can be challenging for working learners. In this environment, impact investing provides a potential vehicle for upward mobility. That model, which taps private funds to address social challenges in workforce development, enjoys growing bipartisan support. To what extent does social financing realign incentives and reallocate risk in the workforce development system? Who are the beneficiaries? How will Covid-19 and its aftermath affect that equation?

Welcome to the Managing the Future of Work podcast from Harvard Business school. I'm your host, Harvard Business School professor and visiting fellow at the American Enterprise Institute, Joe Fuller. My guest today is Tracy Palandjian, CEO and co-founder of Social Finance, a nonprofit specializing in impact investing in the skills development sector. We'll discuss how private capital, deployed through impact investing mechanisms, can help bridge the skills gap and promote upward mobility.

Welcome to the podcast, Tracy.

Tracy Palandjian: Great to be with you, Joe.

Fuller: Tracy, I think our listeners will be generally familiar with the broad concept of social finance, but probably not with many of the details about how it works, how well it's worked, or what we've learned about it. Could you just start off by framing that for us?

Palandjian: Yeah. It could be a little confusing, because there's the field of social finance, and then there's our organization, which is called Social Finance. So, the field of social finance, or impact investing more broadly, has been gaining great momentum, especially over the last decade. It's simply the idea that we have big social and environmental challenges out there. And these challenges could be best addressed when the public, social, and private sectors come together and work together. And it's the idea that government funding and philanthropy are critical, but they alone cannot solve our greatest challenges, and that there's a role for the capital markets to play here. And then there's our organization, Social Finance. For context, Joe, we're an impact investing nonprofit. We were founded 10 years ago, in 2011. And we're focused on building outcomes-based financing tools to align resources with impact, and to deliver measurable outcomes. And at the end of the day, we work across sectors, and we are issue area agnostic, but we want to combine the best of markets-the discipline and incentive alignment that markets bring-with the best of government and civil society to solve these big challenges that face us and to improve lives at scale.

Fuller: So, tell us a little bit about your personal journey. You're the CEO and the co-founder of the firm Social Finance. What attracted you into the sector? And tell us a little bit about your firm's evolution.

Palandjian: My journey to starting Social Finance 10 years ago was definitely not linear, and almost accidental. I've been fortunate enough to have had lots of great opportunities in my life. I didn't grow up in this country. I grew up in Hong Kong. I came to the States for school, decided to stay here and had the chance to build a fulfilling career in the private sector, in management consulting and in asset management. And around 15 years ago or so, I wanted to more intentionally move into the world of social change. And at that time, I was at a management consulting firm called Parthenon. And I thought I would do this by starting the not-for-profit practice there. The premise was, could we inject private sector practices, the analysis, the rigor and the discipline, to support nonprofits to scale and to help them more effectively achieve their mission? So, that was all well and good, but I felt that we were just working at the edges. So, when 2010 happened, and I had the opportunity to co-found Social Finance with Sir Ronald Cohen and David Blood, I leapt at the chance to create a new kind of organization, to rethink how we finance social change by working across sectors and realigning incentives to get better outcomes for our communities. So we've been at this work now for a whole decade and our team has built out a range of outcomes-based instruments to accelerate impact, and especially in the current moment during the pandemic, helping people prepare for the future of work and build new pathways to achieve greater economic mobility, while also helping close the nation's skills gaps-importantly, Joe, a topic that you know so much about.

Fuller: Share with me a little bit of your thinking about the application of small "s," small "f" social finance in the whole domain of skills acquisition and educational attainment. We have a large, primarily government financed, system for higher ed, for post-secondary education. There are other firms, including for-profit firms, that participate in the space. Where do you see the application of social finance as a solution? What are the imperfections in the way the market works, or the distortions of the way the market works, where you think a socially conscious but intrinsically market-based solution is going to move the needle?

Palandjian: I think that the status quo system, which has worked quite well for the 20th century, is no longer working as well for the vast majority of Americans. We live in the richest nation in the world but we're the worst in the OECD [Organization of Economic Cooperation and Development] in terms of the percentage of our population with low wealth. And the pandemic has just exacerbated this situation. And we know well how fragile our economic and social infrastructure is. We all knew before the pandemic that wealth and income inequality has been going the wrong direction for many decades. I loved your podcast with David Autor, when he unpacked this and I think David mentioned that since the 1970s, only the top 25 percent of earners actually saw wage growth commensurate with increases in productivity. At the same time, businesses are investing less and less in frontline worker training, because turnover has really increased over the years. And the same for government funding. In fact, if you look at statistics from US DoL, the Department of Labor WIOA [Workforce Innovation and Opportunity Act], or workforce funding, is nearly down 90 percent in real terms since 1980. Most of the wealth and benefits from all this technological innovation and globalization have been sequestered to the top and that the American dream is no longer applicable for the vast majority of Americans. And obviously, the pandemic has only made things worse. But, even amidst the pandemic, there are opportunities. There are still over 6 million unfilled job openings. More than half of them are good jobs in the middle of skills arena, with great advancement potential, that require training beyond a high school degree, but less than a bachelor's degree. And these roles are growing in industries like green energy, and healthcare, and IT, and the skilled trades. But unfortunately, our current education and training system isn't really set up well to separate people into pathways to get these skills, to land these middle skills jobs. The institutions that have traditionally prepared many of us aren't working as well as they used to. College, which was definitely a pathway to the middle class in the 20th century, is no longer working as well. And in fact, it's really contributed to an unprecedented student debt crisis, going up to over 1.6 trillion of debt collectively owed by over 40 million Americans.

Fuller: Let's talk a little bit about a social impact bond as a mechanism, because it's something that a lot of our listeners will have heard of, but how exactly would it work? And who would back such a bond if it were really designed to create measurable impacts for social goods, but not necessarily maximize rates of return? Help us unpack that a little bit.

Palandjian: Absolutely. So, the first tool that we brought to the United States was the social impact bond. This was back in 2011. The social impact bond is part of a broader set of outcomes-based financing, that we've developed. And the career impact bond is solely focused on upskilling and worker retraining. The social impact bond brings together very different stakeholders, government's, impact investors and service delivery partners. And the social impact bond is a mechanism to basically enable the public sector to only pay for success. And I'll give you a quick example. In 2017, we launched a social impact bond with the state of Massachusetts, whereby we raised almost $13 million of investor capital, that money went toward upskilling immigrants and refugees -2,000 of them across the greater Boston area-through a wonderful nonprofit partner called Jewish Vocational Service. And the metric that would govern investor repayment is based on job placement and wage bumps as experienced by these 2,000 immigrants and refugees. The wage bump, depending on how you count, is between $4,000 and $7,000 more than the control group as measured by a randomized controlled trial, and our investors stand to earn a double bottom line. So that's the social impact bond. It's enabling governments to pay for success by tapping private capital to help align incentives and allocate risks.

Fuller: Let's turn to formal education a little bit more directly. Obviously, there's been a tremendous amount of debate about the impact and efficacy of higher ed, the ability of people to get the financial resources in order to advance their income potential through adding credentials or degrees. Can you talk to us a little bit about what an income sharing agreement is and how those have developed in the United States to start with?

Palandjian: So the income share agreement, or the acronym ISA has been around for a long time, since Milton Friedman wrote about it in his 1959 essay. And it's simply another consumer finance tool. And ISAs are gaining greater prominence, especially in the four-year college setting, where it seems to be a better tool to finance one's college education than a traditional student loan. So here at Social Finance, we simply took the components of the ISA, which are the four levers-the percent share, the duration of the obligation, an income threshold, before this kicks in, and the ultimate cap, which is the total payments that one could pay. We took all these components of the ISA and design the career impact bond around it. And we didn't rebrand it just to be clever but because we firmly believe that the career impact bond approach isn't simply another consumer finance option. It's actually built as a tool for impact. And the impact that we're seeking to achieve is to support people with low income and other barriers to get into pathways of economic mobility. So a couple of years ago, Joe, back in 2019, our team developed the career impact bond to really think about where the intersection of all these things is. Like, what are the job openings in the market? What credentials and licenses do these job openings require in the middle skills arena? Who are the people who've been locked out of these wonderful training programs that exist in the marketplace? And what are the right financing parameters to enable folks-notably people of color, women, and people who face barriers to employment-to get skills to actually land these in-demand jobs, that are in sectors that are continuing to be relatively recession resistant? Many of these workers and students need tailored wraparound support, like living expense coverage, or emergency aid funding, to cover unforeseen expenses like rent, transportation, childcare, et cetera. So, the deal, if you will, Joe, is that students would enroll at these vetted training programs with no upfront costs. And they would enter into an obligation with financial literacy accompanying it, and they would repay their training if they graduated and earned salaries over a particular income threshold. We have a student bill of rights that underpins the whole arrangement, and to make sure that workers have access to financial safeguards like downside protection and allows them to pause payments if they can't find work, as well as fixed caps, and other kind of transparent terms to make sure that the consumer, the worker is at the center of the arrangement. Another feature, Joe, that is also core to the career impact bond approach, which is different from your traditional ISA, is the incentive alignment between the worker and the training provider. So right now, the status quo is that whether you're a college or training program, you get paid by the number of people in your seats, it's all output-based, and they have no skin in the game and whether or not the degree or the program works for the worker, they still collect their tuition. Typically, when someone signs up for a career impact bond, we only advance 50- to 60 cents on the dollar upfront to the training provider. As the students graduate and they land a job, and they keep their job, and they make the career impact bond repayments, they first go back to make our investors whole, because the investors are funding this program. And then the provider is, if you will, at the end of the waterfall, so that they would only be made whole if their constituents are successful.

Fuller: So Tracy, that kind of turns the world upside down relative to the traditional positioning of the skills provider educator. Are they open to this just because it's a last resort? Or are there educators embracing this because they're able to access a type of student that really benefits from these surround services that you're offering, which we found in our research here, the Managing the Future of Work project as being absolutely essential to help advance the success of a lot of learners and working learners?

Palandjian: Absolutely. We've been lucky to partner with some amazing training providers, whether it's General Assembly, or a couple of other coding boot camps out in the Pacific Northwest, Alchemy [Code Lab]. We have another fantastic IT partner that we launched a career impact bond with, called Acuitus, in the Bay Area. Or even in the skilled trades, we have an exciting partner and the Diesel Technician Training space right now. We look for strong graduation rates, we look for strong job placement rates, and importantly, wage growth over time. In fact, these training providers are so confident in their own track record that they say, "You know what? We are very comfortable getting a deferred fee structure, and we would only be made whole if our students are successful at scale." So, it's the incentive alignment piece that is really important to everyone, and it's also another opportunity for these training providers to actually have more students in the door because many of these students would never have the credit or the savings to pay for these programs up front.

Fuller: So it sounds, Tracy, like these are our training providers who have very specific expertise and therefore a clear line of sight from their training to a labor market where they're confident there're placements available, and where they're also confident that their curriculum equips their graduates to be market-ready. Is that a fair characterization?

Palandjian: Absolutely, and very strong employer linkages.

Fuller: So, that's quite different from a traditional educator who's providing a more general background, and a degree, and their best wishes as someone leaves their campus. Is that by design or are those institutions not yet able or willing to take on this kind of subordinate position in the repayment scheme that you described?

Palandjian: Joe, you're very astute in making this point. So, take the diesel technician training program that we have launched. So the traditional way of becoming a diesel technician is to go through a community college. So diesel training programs offered through community college typically are around 150 hours of shop time, but two years of other courses in general education. So, our provider partner has basically said, "You know what? People don't need to go through two years of all this coursework, let me condense a two-year community college program and actually focus more time on hands on training." So the American Diesel Training center has basically boiled down this whole thing into a six week part-time, 300 hours of hands-on training for people to go through the program in one sitting and be able to contribute to the workforce immediately afterwards. I'm happy to tell you a story about one of our students. This guy's name is Joe. He joined this five-week diesel mechanic training program through the career impact bond mechanism. Before joining the course, he was working in minimum wage kind of food service prep. He finished his training and he's now got a job at a leading transportation company making $50,000 a year. And this is not extraordinary for the kinds of people coming out of this program. I think you're familiar with some of the labor shortages in the industry, and some experts say that we need over 200,000 new diesel technicians by the year 2025. The advancement potential is incredibly exciting. So, people might start out as a mechanic, but as they gain more certifications and stay on the job, they can move upwards to other roles in customer service, sales, and management. So, in terms of the career impact bond terms, for Joe, because he's earning $50,000 a year, he's paying $280 a month for a fixed term of four years. At any given time during this four-year period, if he makes below the income threshold, or if he falls out of the workforce, he doesn't owe anything in that particular month. So, the math is such that even after the worker repays, they're still far better off financially than before. And then, for this particular program, there's another exciting feature in the sense that some employers have also offered to take over the payments for the workers for every month that they stay successfully in the job.

Fuller: Also, that type of guarantee is a great encouragement to the student and aspiring worker that this is a legitimate course, that there are bright economic prospects at the end of it, because so often, people make choices about how to pursue training, or an educational degree without really any firm understanding of the degree to which it correlates with an income outcome that will be attractive and make it worth the time, and particularly, the either debt capacity or cash invested. Are you targeting a particular demographic? Is Joe, and are Joe's classmates, people that have some college, no degree? Are they fresh out of high school? Are they repositioning themselves from a different job that has faded away, or is it just all over the map?

Palandjian: Well, every career impact bond is different. So, for the diesel technician one, I think by and large, the population only has a high school degree. And most of the students in the classroom are in minimum wage kind of food service hourly worker. For other career impact bonds like the one with General Assembly, we're focused on a population that is either low income, people who've been in the criminal justice system, we really target people who have been on the public benefits program or have been on the earned income tax credit. If it's just a simply a lateral move, a pivot from one middle class job to another, that wouldn't fit our mission.

Fuller: Tracy, we're just talking in March 2021. Spring is beginning to make itself felt. A few crocuses were spotted this weekend, in the Boston area at least. And similarly, we're beginning to come out of the worst part of the Covid-19 pandemic, which has wrought such terrific damage on a lot of people's jobs, and job prospects. How do you see the impact of Covid-19 on the types of middle skills jobs in which you're focused, and the role of things like career impact bonds in helping us get out of the aftereffects of Covid?

Palandjian: We see tremendous growth in the types of middle skills positions that are going to continue to grow as we get out of the pandemic. Just look at healthcare, Joe, the demand for middle skills professionals is incredibly high and growing. Support staff positions like physician's assistant and pharmacy tech rank among, probably some of the most sought-after roles. And of course, the need for nurses up and down the nursing ladder remains really high. IT is another area that we're really focused on. The pandemic has quickly transformed how we all work, how we get together, and businesses that never thought that they could adapt or adopt remote work policies, for instance, are now trying to figure out how to handle telecommunications and all the IT requirements that come with it. And there are just so many of these middle skills, IT roles, that we have to fill to support this economic transformation from help desk, customer service roles to user experience, design roles, software engineering, et cetera. As I mentioned, we've now launched three career impact bonds in the IT space, network administration, software engineering, user experience, and we're just seeing the demand for these skills continue to grow.

Fuller: Tracy, you've written that things like career impact bonds, social impact bonds are the ultimate bipartisan issue that the types of things they fund or things that the outcomes that everyone can get excited about. How do you feel about this as an issue of public policy, and what would need to change in terms of the policy domain, the regulatory domain, to really unleash the power of these tools?

Palandjian: The field of impact investing has really enjoyed bipartisan support over the last 10 years. And if you really think about the principles that undergird these instruments, I think we can all agree that we need to get better outcomes for people and we need to spend taxpayer money more effectively. And it's just highly resonant across the aisle. In particular, during the Obama years, we've just seen a huge boost to the field, to community development finance, to impact investing, to the broader field of pay-for-success. Congress passed the first ever piece of pay-for-success legislation and this is something that we're very proud to have shaped and advanced called SIPPRA, which is The Social Impact Partnerships to Pay for Results Act, an historic piece of federal legislation, which earmarked initially $100 million to sit in Treasury for use for these types of public-private partnerships. And we're seeing similar embrace at the state and local level. And we have worked with a lot of Republican and Democratic governors and mayors to think about public-private partnerships and these outcomes-based funding tools to improve the lives of their citizens. I think in our current work with the career impact bond, there's just such a great need for bipartisan agreement around having good regulation around the ISA, around the income share agreement. The ISA world is really the Wild West, because there's just no regulation right now. So, I think that there's great opportunity in Washington to craft ISA legislation, to really focus on the worker. There are lots of features in our student bill of rights that we hope that Congress would look into, like fleshing out important learner safeguards, payment caps, repayment terms, downside protection, and the like.

Fuller: When people express concerns about social finance, or they criticize it, what do they focus on, and to what extent are you sympathetic with some of those concerns or criticisms?

Palandjian: The field of impact investing and lowercase social finance is really broad. And by and large, it was born out of the sentiment, that markets have a role to play in solving social problems. And maybe policy should get out of the way a little bit. I think our specific approach at our firm, at Social Finance-capital "s" and "f"-is very much about harmonizing the power of markets and government, and it's really bringing together sectors that we can get the best, and the most enduring outcomes for our communities. I think the knock has been that many of these problems are hard to define a set of metrics around, and we completely appreciate that. But to kind of go from the status quo, which is that we don't really measure much-and if we measure anything, it's around outputs-to having a much more outcomes-focused set of metrics, no matter how imperfect they may be, is a huge advancement vis-à-vis the status quo.

Fuller: And I imagine your funding sources are very intent on seeing those results and insisting on seeing positive results.

Palandjian: It's actually a very important point, Joe. So we're basically putting the career impact bond to work in two ways. The first way is an investor-backed model, so we've raised an investment fund called the Up Fund. And it's backed by all kinds of philanthropically motivated investors, so it's a $40- to $50 million pool of capital. And our anchor investors are the MacArthur Foundation, the Michael & Susan Dell Foundation, Schmidt Futures, Blue Meridian Partners, Donor-advised funds, etc. And this money is first and foremost about the impact on people. And secondarily, it's about their return. And no one's really getting rich. We are targeting a low single digit return to our investors. But compared to grant making, the money's coming back, and you can do more impact with it. And we're also putting the career impact bond to work without investor participation in a public policy arena, working with state and local governments.

Fuller: So Tracy, how do you see social finance unfolding in the next five to 10 years? Or is this something we're going to see much more commonly deployed, and particularly in the space of education, career readiness, skills and competencies, which is such a big sector of the economy, and frankly, has continued to perform pretty poorly by a lot of measures?

Palandjian: We're incredibly excited about the power of this tool going forward to upskill and reskill, hundreds and thousands of people. Since launching the Up Fund back in 2019, we've now launched four career impact bonds, three in IT, and one in the skilled trades. And we have half a dozen on the way in the sector's and healthcare. And we're beginning to see proof of concept as people graduate from these programs, they land jobs in the middle of skills arena, and begin making payments in midst of the pandemic. But we're really focused on scale, and with an eye toward building a scalable platform, we're focused on these pay-it-forward funds models that I mentioned earlier, by partnering with state and local governments, because we really believe that using the policy lever is one of the most efficient and powerful ways to achieve broad-based social impact for our communities. So, as I mentioned earlier, this is something that we've now been working with half a dozen states in building, and instead of using investors as the capital behind the career impact bond, these pay-it-forward funds are powered by public dollars and philanthropic contributions in the local community. And as workers gain skills, get jobs and begin to make repayments, their funding goes back into this pool, to pay it forward for future cohorts of workers who benefit from upskilling opportunities. Obviously, for government to see sustainable results for their workforce dollars, and to build the workforce of the future to drive their economic development agenda. Obviously, employers are incredibly excited because they can get diverse talent and fill these critical job openings. Training providers are also very much embracing this tool as they're rewarded as they place students in good careers. And they get to serve many more students and expand their addressable market. And then obviously, the most exciting aspect is that workers like Joe get to realize their potential, find meaningful work, and actively participate in the economy of the future.

Fuller: Well, it certainly seems that the development of skills and helping people get on a pathway to economic independence and a solid basis for household formation, really is very well suited to the social finance model, because the system we have for education funding and training funding is very hidebound-works for a large number of people, so we don't want to throw it out the window-but really, is not well suited to accommodate the type of responsiveness to market trends given the pace of technological change, proliferation of new types of jobs, that this type of social finance arrangement can arrange for. So, it's a very, very appealing concept. And, Tracy, we thank you for joining us on the Managing the Future of Work podcast.

Palandjian: Glad to be with you, Joe.

Fuller: We hope you enjoy the Managing the Future of Workpodcast. If you haven't already, please subscribe and rate the show wherever you listen to podcasts. You can find out more about the Managing the Future of Work Project at our website hbs.edu/managingthefutureofwork. While you're there, sign up for our newsletter.

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Joe Fuller: As the skills gap grows, students take on debt toward traditional four-year degrees that often don't leave them job ready. Short-term certificate programs, while they can deliver more relevant skills, cost upwards of $10,000. And they often require months of fulltime study. That can be challenging for working learners.

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On Aug. 20, Blue Meridian Partners, General Assembly, and Social Finance hosted a webinar on the Career Impact Bond (CIB), an impact-first income-share agreement (ISA) that helps people who are underemployed or unemployed access career training and get good jobs.

Blue Meridian Partners Chief Investment and Impact Officer Jim Shelton moderated the conversation, which included General Assembly Co-Founder and outgoing CEO Jake Schwartz, Social Finance CEO Tracy Palandjian, and Branden LaCour, a General Assembly CIB graduate and software engineer at HGS Digital in Chicago.

Shelton, formerly the Deputy Secretary of the U.S. Department of Education, began by providing some important context on the current education and job training landscape: Both public and private institutions are paid for getting students in the door, but are not similarly incentivized to achieve key student outcomes like graduation or job placement.

"We have lots of reasons to be proud of higher education," Shelton said. "We created a system to create real pathways to upward mobility built into our middle class. And we created real on-ramps for access for many people and we forgot one really important thing: graduation. The mechanism for financing schools today allows people to get paid whether students actually get a good outcome or not. The question is, can you realign the incentives so that the students' best outcome is the best outcome for the institutions?"

The CIB is designed to realign incentives to achieve the best outcomes for students like LaCour, who kicked off the discussion by talking about his past life as a part-time bartender and engineer.

The student experience

LaCour had cultivated self-taught engineering skills but needed more formal training to move into a full-time software engineering role. He had applied to enter General Assembly's Software Engineering Immersive but was declined due to poor credit. But LaCour reapplied and got accepted through the CIB. He began classes in December 2019, graduated in March, and was hired at HGS Digital in May with a starting salary that nearly doubled his income.

During the webinar, LaCour described the rigor of the program at GA, along with the career supports that helped him land a job soon after graduation. He also talked about his career coach, Chelsie Noble, who helped him with his resume and portfolio, and prepared him for interviews and salary negotiations.

A new model for education financing

Palandjian followed with a description of the CIB:

"We start with real-time labor market data to see where the jobs are. We target high-growth industries and high-performing training providers like General Assembly, and then we find the impact investors to cover a portion of the tuition cost and fund important wraparound support services. The capital from the impact investors enables students like Branden to enroll with no upfront cost. Those who get good jobs, and importantly, those who keep these good jobs with salaries over a particular income threshold repay the program costs as a fixed portion of their income over the next few years. Those who don't get a job, or those who don't get a job that pays over that threshold owe nothing."

The CIB includes student-friendly terms and protections provided under the Student Bill of Rights , including payment caps and fixed repayment terms with no extensions.

Schwartz then talked about how the CIB financing model matches General Assembly's mission. "We want to create accessible paths for people to get onto career trajectories that are growing that are exciting and inspiring for the students, and that have a future and are part of the new economy."

The panelists closed out the webinar by addressing specifics about the model, including the payment terms. On the financing, LaCour, who is currently making more than $70,000 per year, explained, "Even at $50,000 I would still be better off than where I was, still paying 10% [of my salary]."

As the job market changes, we need tools like the CIB that help workers like LaCour find pathways to careers in high-growth fields such as information technology, health care, and green energy, and ultimately achieve real economic mobility.

. . .
Learn more about the Career Impact Bond >> Watch the webinar highlights >> Watch Social Finance's Tracy Palandjian explain the CIB >> Watch General Assembly CIB graduate Branden LaCour share the student perspective >>

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The Future of Upskilling is Here: Webinar Recap - Social Finance

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On Aug. 20, Blue Meridian Partners, General Assembly, and Social Finance hosted a webinar on the Career Impact Bond (CIB), an impact-first income-share agreement (ISA) that helps people who are underemployed or unemployed access career training and get good jobs.

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Social Finance UP Fund Website Notices

This Website displays information about the UP Fund, L.P., a Delaware limited partnership (the "Fund"). Such information is provided for information purposes only and does not constitute an invitation, offer or solicitation to buy interests in the Fund. Any offering of Interests in the Fund only will be made to "accredited investors" as defined in Regulation D under the United States Securities Act of 1933, as amended, pursuant to a confidential private offering memorandum, the Fund's agreement of limited partnership and a subscription agreement which may be furnished to qualified investors on a confidential basis.

All information is provided for informational purpose only and does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in any security or investment, including, but not limited to interests in the Fund or CIBs.

If you have any questions about this Website or the information on it, please contact Social Finance at info@socialfinance.org.

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This Website displays information about the UP Fund, L.P., a Delaware limited partnership (the "Fund"). Such information is provided for information purposes only and does not constitute an invitation, offer or solicitation to buy interests in the Fund.

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Pay It Forward Funds

Social Finance is partnering with state governments and local workforce funders across the country to create self-sustaining pools of job training dollars called Pay It Forward Funds (PIFFs). These place-based funds support individual Career Impact Bonds (CIBs) that bring together wraparound support services and student-friendly income-share agreements to help individuals upskill with high-quality training providers and achieve economic mobility.

PIFFs create sustainable cycles of training that are fundamentally focused on outcomes. Students who experience positive employment outcomes repay the cost of their training, paying it forward into a common fund to support future students.

In fall 2020, New Jersey became the first state to announce the development of a PIFF. Partners in six other states are pursuing similar efforts, which blend public, philanthropic, and corporate funding to invest in sectors that are locally relevant, resilient, and in high-demand, including clean energy, IT, advanced manufacturing, and health care.

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Social Finance is partnering with state governments and local workforce funders across the country to create self-sustaining pools of job training dollars called Pay It Forward Funds (PIFFs). These place-based funds support individual Career Impact Bonds (CIBs) that bring together wraparound support services and student-friendly income-share agreements to help individuals upskill with high-quality training providers and achieve economic mobility.