University Business May 2017 - 43

Americans are now in default on $137 billion in federal student loans. Those most
likely to default may also be most suitable
for an ISA.
"ISAs aren't right for everyone, but I believe for about one-third of students, it's a
better way to fund college," he says.
ISAs act as sort of an insurance policy for students in case they don't earn
enough to make payments when they
graduate or if they lose a job or want to
take time off in their career for personal
reasons. Those who graduate from college expecting to enter professions that
don't have high wages seem to be the best
candidates for ISAs-and the risk from
these individuals gets balanced out with
others who will earn more, according to
ISA providers.
With an ISA, graduates can't default
in the same way as with student loan
non-payment, but those who fail to pay
the income share would be reported as
delinquent to a credit bureau-and a
collection agency could be used to help
obtain the payments.
"Students who come from uppermiddle class or wealthy families don't
need a loan with an insurance product,
which is essentially what an ISA is," says
Michael Stynes, executive director of the
The Jain Family Institute.
Tonio DeSorrento, CEO and director of Vemo Education, says, "If you are
a lower earner, you're always better off in
an ISA than a private student loan or a
student loan generally based on incomebased payment."

3

ISAs are based on income potential rather than parent income.
Traditionally, college financing
and parent income go hand in hand. But
with ISAs based on the student's ability
to repay, college graduates shouldn't be
stuck with a payment they can't afford.
Many proponents of the concept believe income-based repayments better
reflect the value of a college education,
compared to the preset debt incurred

www.universitybusiness.com

BACK A BOILER-Purdue's self-funded ISA program has served 160 juniors and
seniors since its launch in fall 2016 and will include sophomores as of next school
year. Students with any major may participate in the program, launched as part of
a broader effort to make college affordable.

through a loan. "What you pay for college should be linked to the value you get
there-so income-share agreements align
what you pay with what you get," says
DeSorrento.

4

ISAs are not necessarily meant
to replace federal student loans.
Instead, they're an alternative to
other options once federal loan opportunities are exhausted. Federal direct loans
are generally known to be a safe way to
pay for a college education.
The additional loans families may
take out are what ISAs are designed to replace. Private loans and Parent Plus loans
are often high-interest and can be difficult for students and parents to repay;
they also have high default rates. "ISAs
are a safer and more powerful alternative," says Stynes.

5

Be prepared to overcome the
misconception that ISAs are like
indentured servitude.
Ted Beck, president and CEO of the
National Endowment for Financial Education, recalls that when he first heard
about ISAs, he fell into that camp. "However, as I've looked into the structure of
them, they are very interesting and have
some potential," he says.
Overcoming first impressions about
ISAs, as Purdue has done, is important

for any higher ed institution launching
an initiative.
"Purdue's program is pretty thoughtful and answers some of the big structural
considerations," Beck says.
Beck's organization doesn't offer education to the public or financial aid offices about ISAs, but he says it might be
a consideration as more schools start programs and track their success.

6

There is no legal framework
governing ISAs, but that may
change.
In February 2017, Florida Senator
Marco Rubio and Indiana Rep. Todd
Young introduced the Investing in Student Success Act to create a legal framework for ISAs. Rubio introduced the bill
to the Senate in the last Congress, and
Young introduced the companion bill in
the House.
The bill provides a definition of
income-share agreements so both the
investor and the student would know
what their responsibilities would be under the agreement before signing on the
dotted line.
Elaina Loveland is a Boston-area writer.
MORE ONLINE @
UBmag.me/tuition
Links to ISA providers

May 2017 | 43


http://www.UBmag.me/tuition http://www.universitybusiness.com

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