Income Share Agreements: An Innovative Alternative to Student Loans
As colleges and universities shift their focus towards a lifelong learning model of education, Income Share Agreements (ISAs) are becoming a popular way to help students finance their education while reducing their debt burden. In this interview Mary Walshok and Josh Shapiro discuss what it took for UC San Diego Extension to successfully implement the ISA pricing model for several non-credit programs, and share some insights into the benefit of ISAs for learners and the labor market.
The EvoLLLution (Evo): What led you and your colleagues at UCSD to explore ISAs over other mechanisms designed to increase affordability and access?
Mary Walshok (MW): USCD is heavily embedded in the tech industry and we have a very large continuing education portfolio, with approximately 66,000 enrollments a year. This largely consists of engineers, project managers, data analysts and people who work in the high-tech, high-wage environment. With Josh on our tea, we started developing insight into the skills and competencies companies like this need and we discovered that they’re not just hiring college graduates with STEM skills. They’re also looking for good high school and community college graduates with STEM skills.
Through engaging with our community, we realized we could help potentially employable people who didn’t have college degrees get good jobs in the tech industry. This led Josh and Andy Hall, with the San Diego Workforce Partnership, on a journey of exploring different ways to enable highly motivated, potentially highly qualified workers access to professional certification at little or no cost. This is when the ISA started to look like a really interesting option.
Josh Shapiro (JS): One of the things that was most appealing about ISAs for us was the sustainability aspect. We give a number of scholarships at UCSD Extension and have philanthropic supporters working to create access for underserved and underrepresented communities. But every single year, we have to come back and ask for more money and create new programs. One of the beautiful parts about the ISA was the idea that we were building a sustainable model that would allow individuals coming through our program to pay back once the program has led to student success outcomes. The ISA model means each cohort pays and helps reskill the next cohort. That sustainability aspect makes this model both innovative and exciting.
Evo: How did the ISA programs at Purdue and Utah help inform the design of UCSD Extension’s ISA?
JS: ISAs aren’t new. They date back to 1955 with Milton Friedman first proposing what we’re now calling an ISA. Yale experimented with it in the ’70s, but Purdue and Utah are two of the big leaders currently. Their work mainly serves the undergraduate population, which is different than the adult continuing and professional education population we’re designing our ISA to serve.
There have also been several bootcamps that have used ISAs to support the upskilling of their learners. Our goal, in collaboration with the San Diego Workforce Partnership, was to build the most consumer-friendly ISA possible. That’s why our ISA is backed 100 percent by philanthropic dollars through the startup phase. Every single dollar that goes into the fund will get recycled back to help the next cohort—there are no profits for banks or shareholders.
We definitely looked at the model that other folks were using, but we felt we needed to create our own model that was unique to the population that we serve. Not all ISAs are created equal. It really comes down to the term sheet, how the students are being served, and what the institutional values are.
Evo: From your perspective, why is it so important to be creative when building access pathways to non-credit programming?
MW: The whole world of work has changed as we now have fewer large companies that employ the majority of the workforce. One major shift is that colleges and universities are becoming the sources of skills development and career-based education and training. This used to be the purview of employers.
There has also been a tendency for Pell Grants and other sorts of funding to focus primarily on securing that first degree, the academic degree. At the same time, technology and globalization have created a workplace where you have to reskill and upskill every two or three years.
Non-credit professional education for the workplace is becoming an imperative, and not all people have the resources to take advantage of it—to stay current, or to even get that first job.
JS: If you look at the macroeconomics of jobs and the economy, we know that upskilling and the pursuit of lifelong learning is more critical now than ever. It is imperative that individuals continue upskilling, remaining relevant in terms of the types of skills and coursework that they’re developing.
This is great, but the fact is that UCSD Extension—like almost every other provider of programming for non-traditional audiences—doesn’t take Title IV funds. This means you either have to pay for the education yourself or an employer pays. That means we’re not serving the entire community, since not everyone has that type of access to capital. At this moment in time, the ISA model provides an opportunity to reach those individuals who otherwise would not have an opportunity to upskill. We know how important that is for bringing underserved and underrepresented people into middle-wage jobs.
Evo: What did it take to establish the partnerships with Google.org, Strada, the San Diego Workforce Partnerships and the James Irvine Foundation to get the ISA off the ground?
MW: Firstly, I would like to credit all these organizations for recognizing that there are categories of talent for which they’re having trouble getting qualified people. Particularly in areas like coding, Python, Java—the basic entry-level skills in a technology-based company. We were excited that they cared about that.
We also knew from the San Diego Workforce Partnership that community colleges, at least in the tech space, did not have the same kind of robust programs or industry connections that UC San Diego had.
The San Diego Workforce Partnership knew where the latent talent was and how to support it in resume building. From UC San Diego Extension’s side, we had the corporate relationships, and the deep knowledge of the required skills and competencies. We realized if we came together and convinced a few of these philanthropic organizations that an ISA program was a way to grow that pipeline, they would fund us.
We understood a problem among employers and among the underemployed and unemployed sectors, and ISAs represented the way to get them into the right pipeline for the right jobs.
JS: I would definitely say that building this partnership took a lot of upfront thinking and modeling about how the program would function. We made some strategic decisions around wanting to be incredibly consumer friendly. If you look at our student protections, they typically don’t start payments until they’re earning a living wage, which is $40,000 a year in San Diego. They’ll never pay more than 1.8x the cost of the program. We also have a reduced payment window, which means that the payback’s not going to drag on like a loan.
All of these strategic decisions up front were an effort to secure philanthropic dollars. Aligning with philanthropic partners went along with our values as a non-profit serving the community, but we also didn’t want to take private equity and venture capital to provide start-up funds here. We wanted to build this consumer-friendly model and these organizations were very interested in how we were conceptualizing this ISA.
Evo: Would it have been possible to launch an ISA for non-credit programming without partner support?
JS: Could it be done? Yes. Would it be more challenging? Of course.
We definitely benefit from the partnership with the San Diego Workforce Partnership for the particular population that we are looking to serve. They are going to be providing support services, mentorship, networking, resume enhancements and more. That’s a critical component of ensuring the individuals coming through our educational programs are going to be able to obtain the middle-wage jobs that we’re looking to place them in. It also helps quite a bit having these strong philanthropic foundations supporting us, both from a network standpoint as well as kind of validating the work that we were doing.
Evo: What’s the impact on learners that this kind of access to robust holistic support and expertise can bring?
MW: You take motivated people, give them a set of competencies that are marketable and support them in such a way that they’re self confident and ready to enter the kind of company they might not otherwise have access to. The payoff students are going to get from this program—with access to mentors, or an internship, or a first job in a company with high growth opportunity company—is very different from the ROI from a traditional workforce partnership or community college program offering.
Evo: What are the short- and long-term goals for the ISA at UC San Diego?
MW: UC San Diego Extension, particularly through the extension service I lead, has made a major commitment to supporting ISAs. It’s one of our five strategic objectives as a research university to help build the regional economy, and the regional talent pool.
What we’ve learned as a university is our connections are absolutely essential for undergraduates who are getting college degrees, but also potentially useful in these very targeted skill areas for which the companies we work with need well-trained people. It is part of the core expression of our value as a publicly funded research university.
JS: This is our initial pilot and we expect to serve 100 individuals. By 2021, our program should support 500 San Diegans and by 2025, we’re projecting being fully self sustaining. This means participants are paying it forward to the next cohort, and so we’re not taking on additional philanthropic dollars at that point.
We launched our pilot in the tech space, which means we’re focused on certificates, digital marketing, business intelligence, Java programming and front-end web development. But from there, we know that that’s not serving all the industries and jobs that could benefit from an initiative such as this. So we’re planning to expand programmatic efforts into health care, advanced manufacturing, drones, cyber-security, etc. But we were just looking for a place to start, but from here we see a lot of potential of growing the program.
This interview has been edited for length and clarity.