By Bria Overs
Originally appeared in Word in Black
After the Supreme Court handed down two devastating losses on affirmative action and the sweeping plan to cancel student loan debt, Black people are seeking alternative methods to pay for higher education.
An estimated 84% of Black graduates across public and private institutions had student loan debt and have the “highest and fastest-growing” student loan balances. In an attempt to avoid that traditional route, some are turning to income share agreements (ISA), legally binding contracts that provide financing for higher and continuing education without paying upfront.
However, students would exchange a portion of their future income for a period of time after graduation or completion of the program. Depending on the terms, students only have to pay back the money if they meet specific requirements.
These agreements are most commonly offered by workforce development programs, training bootcamps, and a few colleges and universities. Yet, there is skepticism about their use — and lawsuits against the companies issuing them.
A RAND Corporation research report revealed there are “few regulatory safeguards to prevent the use of potentially misleading language in ISA documentation,” and little is known about the number and characteristics of institutions offering them. Some documents lacked essential information about how the agreements work, including income share percentages, minimum earnings required for payments, and repayment timelines.
“There’s a lot more one should know before signing a contract, but that’s sort of the minimum, essential information,” Melanie Zaber, economist and co-director of the Middle-Class Pathways Center at RAND, says. “Particularly colleges and universities — more than half of them were missing one of those key terms. The workforce development programs were a bit better, but we still see more than 30% of those institutions missing one of those key terms in their publicly available information.”
‘Return on Investment’
Andrew “Zues” Dyer, 34, signed up for an ISA in 2019 to take a 10-week User Experience (UX) Design bootcamp course at General Assembly, a company providing tech career bootcamps. The program costs just under $15,000, and according to the company, under the terms of their Catalyst Program agreements, they would take 1.6% to 10% of a student’s income over four years after graduation.
General Assembly graduates who sign up for an ISA have a three-month grace period — three months shorter than the grace period for federal student loans. However, if a graduate cannot find employment after that time, their payments could continue deferment, according to their 2019 Student Financing Handbook. If they found a job, the graduate must make at least $40,000 a year to start monthly payments, regardless of the job title or field. The program caps the amount owed at $22,425, and they would “never extend the payment term beyond six years” after graduation.
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Dyer graduated from the course in 2020, shortly before the COVID-19 pandemic. “I hadn’t found a job in the field making that amount, so I haven’t had to pay anything back,” he says. “There were a lot of layoffs, particularly in the UX field, and they were looking for very senior people versus people who were new.”
He tells Word in Black he had a positive experience with General Assembly and their ISA but ultimately decided to pivot careers to become a real estate agent in Atlanta, GA.
“I think in the end, especially when you’re doing a program like that, the ISA is helpful because it allows you to fund the education you want to boost your career and earning power without a lot of the upfront hassle,” he says.
The Problem with Income Share Agreements
Access to information is essential to the decision to sign these contracts, and not all institutions provide as much detail and transparency as General Assembly.
The Student Borrower Protection Center has argued that income share agreements are not the “progressive alternative to student loans” they claim to be and instead are “predatory inclusion.” They also encouraged government agencies to hold the ISA industry accountable for complying with state and federal consumer financial protections. The Center did not respond to requests for interviews.
In 2021, the Consumer Financial Protection Bureau took action against student lender Better Future Forward, Inc. for falsely representing that its ISAs were not loan products and did not create debt, denying consumers necessary information, and subjecting them to fees and penalties for early repayment.
Prehired, a “members-only workforce accelerator,” was court-ordered to shut down and provide more than $30 million in debt forgiveness last month for “luring students into agreeing to illegal and predatory loans with promises of six-figure salaries and guaranteed jobs,” USA Today reported. Make School, a coding academy, and Vemo, an ISA provider, were sued by 47 former students in 2021 for concealing the actual costs of their ISA package.
Creating a framework for these institutions to follow is challenging. Currently, the industry is a “giant black box,” Zaber says, and there continue to be opportunities for people to be taken advantage of. “We think there’s value in taking an affirmative regulatory approach of ensuring that we’re getting the best version of these because of the disproportionate potential for certain populations.”