This brief market research report explores the state of the industry, the recent growth of Income Sharing Agreements. I analyze how companies can build business models in this space, and how these organizations could potentially address higher ed's challenges
The rising cost of college and the student debt crisis have become one of the main causes for concern for the US economy. A growing economy and full employment mask the dangers of this crisis in the making: the overall price of higher education increased 600% between 1980 and 2010, double the rate of inflation in that period (per Ryan Craig's "College Disrupted"), with student debt rising to $1.5T (the size of South Korea's economy).
Despite this financing crisis, attending college still has a significant effect on future student incomes ($17,500 yearly income difference for millennials), especially among top programs. This increase in cost through sustained demand has turned students to loans in order to cover tuition and living costs.
"Working at minimum wage in the late 1970s, a typical student could pay her entire tuition by working 183 hours - a part-time summer job. In 2013, [she] would have to work over 991 hours (a full-time job for half the year)."
Seeing college cannot be funded through work only, these loans are problematic for many students because they affect their financial health for extended periods of time, and because it puts pressure on graduates to get an income earlier in their career (as opposed to building skills for the long run)
Income-Sharing Agreements (ISAs) seek to solve these problems by providing funding upfront in exchange for a percentage of future incomes from the student. ISAs usually include a set of conditions and terms such as a minimum income threshold (under which the student does not repay anything), a maximum payment cap (which establishes the maximum a student could pay for the loan) or a payment term (a maximum timeframe for payments).
Here is an example of a [university-issued ISA](https://www.savingforcollege.com/article/income-share-agreements](https://www.savingforcollege.com/article/income-share-agreements)).
A typical ISA might involve a student agreeing to pay 0.4% of income for 10 years after graduation for each $1,000 received from the lender.
So, if the student receives $30,000, they agree to repay 12% of their income for 10 years. If the student has a starting salary of $50,000 per year and receives 3% annual raises, the total payments will be $68,783, or 2.3 times the amount received. That’s the equivalent of a 19.6% interest rate on a student loan with level repayment over a 10-year repayment term.
ISAs have had a long history since Milton Friedman first proposed them in the 1950s, but gained recognition recently under the model adopted by coding bootcamps. ****This funding structure was adopted by both short-term coding bootcamps (1-2 months) or longer programs like MakeSchool, Holberton School or Lambda Schools (from a few months to two years). The average cost of these courses ranges from $10,000-$15,000 for shorter programs, all the way up to $30,000-$50,000 for longer ones, which are easily repaid upon employment given the current demand for software developers and rising salaries (Lambda School claims 83% of their students get a job with a median salary of $70,000 within six months of graduating).
Coding schools using ISAs