In 2016, Purdue University announced an income-share agreement program as a guinea pig experiment in which students could get money for college in exchange for a cut of their future earnings. “Back a Boiler,” it was called, in a nod to the school’s Boilermaker nickname. University president Mitch Daniels talked up the idea in testimony to Congress.
Intrigued, other university leaders wanted in. “We’re looking at what Purdue University is doing now, and we are thinking about it,” said Sheila Bair, then president of Washington College. In subsequent years, Purdue’s program won a think tank’s award for most innovative public policy proposal, and at least 14 other colleges or universities launched similar initiatives.
So Purdue’s announcement in June that it was suspending the Back a Boiler program came as a thunderclap in the world of income-share agreements, or ISAs, and could signal the beginning of the end of experiments involving college students splitting their future paychecks with investors.
The number of schools offering ISAs is sliding down the far side of the bell curve, as several other accredited colleges or universities have ended or paused their programs. It’s a sign of fraught times for these schools and for the training boot camps that offer ISAs, with lawsuits mounting, federal and state governments imposing restrictions, and students reporting mixed satisfaction.
Purdue’s pause points to bigger problems in the ISA industry. One reason Back a Boiler has been suspended is that program servicer Vemo Education went out of business, says Brian Edelman, president of the Purdue Research Foundation. (Two other Vemo clients—Messiah University and Colorado Mountain College—also reported that the company has shut down, though the company doesn’t appear to have made a formal announcement. It did not respond to inquiries asking for confirmation.)
A year ago, Vemo was sued by 47 former students of a for-profit coding academy called Make School; the students alleged that Vemo and Make School colluded to run a high-cost ISA program that violated state and federal laws forbidding unfair or deceptive business practices and false advertising. The students had agreed to repay 20 to 25 percent of their pretax income each month for three and a half years or more, with monthly payments as high as $2,500; some students signed contracts under which they would owe as much as $270,000.
There’s another reason for Back a Boiler’s pause: clampdowns by the federal government on certain schools that offer ISAs. In a consent order last September issued by the federal Consumer Financial Protection Bureau (CFPB) against several private ISA providers, the bureau concluded that the schools had violated federal law by falsely telling users that ISAs weren’t loans and don’t create debt. A sample contract on the Back a Boiler website, for example, notes, “This is not a loan or credit.”
In March, the Department of Education told accredited colleges and universities that, following on that order, they also must treat ISAs as loans, which have stricter rules requiring that students be allowed to pay them off early to save money. The CFPB’s order interrupted the Purdue Research Foundation’s conversations with investors about an additional round of ISA funding, and Purdue decided to pause the program, Edelman said.
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It’s not just Purdue: Seven other accredited colleges or universities that once offered ISAs told the Hechinger Report that they’ve either paused or ended their programs. Only four of the 15 schools contacted said they’re continuing; three schools didn’t respond to inquiries.
Some of those closing shop report lack of interest. At the University of Utah, just 121 students have participated in the school’s ISA program since it started in 2019, at a university that enrolled more than 34,000 last year, Rebecca Walsh, a university spokesperson, said by email.
Others worry about federal scrutiny. Rockhurst University in Kansas City, Missouri, has put its program on pause while it seeks more clarity on the changing federal guidelines, Katherine Frohoff, a university spokesperson, said by email. Colorado Mountain College, which offered ISAs to undocumented students not eligible for federal aid, has suspended its program indefinitely. The school failed to get its not-for-profit program excluded from new regulations designed to weed out for-profit bad actors in the ISA space, Matthew Gianneschi, a college spokesperson, said by email.
And one of the four surveyed schools that’s continuing its ISA program—Clarkson University—has decided to restrict eligibility to juniors and seniors, who are better positioned to evaluate income-share agreements in light of their career pursuits and academic goals, according to a Clarkson spokesperson, Kelly Chezum.
The terms of ISAs vary widely. Income shares can range from 2 to 20 percent. The contracts typically cap the total amount users will ever have to pay back and include an income floor so that if their earnings fall below it, they pay nothing. But payment caps can be as high as three times the funded amount, according to a 2020 report by the Student Borrower Protection Center, an advocacy group.
Little is known about whether former students who have ISAs are happy with them. None of the schools contacted for this story had surveyed their participants, and advocates and experts knew of no such surveys. (Gianneschi said that Colorado Mountain College has just started research on student satisfaction.)
Ben Kaufman, director of research and investigations at the Student Borrower Protection Center, said that borrowers frequently report to center staffers that the actual terms of their contracts end up being far more expensive than they were led to expect. When ISAs first launched, proponents claimed that market discipline would produce transparent products that would align the interests of schools and students, Kaufman said. “What we see when we talk to borrowers, and as the industry is increasingly unable to deny, [is that] what has resulted is totally different.”
For some students, it’s the lack of a prepayment option that makes ISAs a bad deal. Grace Gusler, a former Purdue student, took out a $5,000 Back a Boiler ISA between her freshman and sophomore years. She’s paying just over 2 percent of her monthly income—about $80 a month—back into the program, and those payments are slated to continue for nearly 8 more years. At her current earnings, she’ll end up paying more than $10,000 to Purdue (that will increase if she earns more money). The payments are manageable, but if she had it to do over, she says, she wouldn’t get an ISA because, if she pays it off early—as she’s done with most of her other student loans—she’ll have to pay $12,500, the full payment cap set by the contract.
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Student advocates say that feature constitutes a prepayment penalty, which is forbidden under federal rules governing student loans. In its March announcement, the Department of Education declared that ISAs are by definition private education loans. The department has not yet determined whether that means that ISA payment caps violate the prepayment penalty rules, deputy press secretary Fabiola Rodriguez said by email. But “colleges that market private education loans are required to comply with all related legal and regulatory requirements” for those loans, she added.
Two states have already tightened their rules. Last August, California announced it would treat ISAs as student loans under state law; in Illinois, a law passed the same month defines them as loans.
And at least one investor has soured on using ISAs to fund boot camps that offer students short-term training on skills like coding. In 2019, Sean Linehan cofounded Placement Holdings. The company provided ISAs to help people move into higher-paying cities where they could earn more. Soon, it began offering career services to boot camp participants working closely with ISA providers. But some students, especially those without much prior education, had a tough time learning to code, Linehan told the Hechinger Report. Because ISAs let students enroll in them without paying up front, they had no skin in the game, meaning even fewer students successfully finished, Linehan said. Today his company offers career coaching, but he’s gotten out of the ISA business.
Meanwhile, lawsuits are piling up against boot camps offering ISAs. Since 2021 at least four have been sued. In the latest case, in June, Washington state’s attorney general filed a lawsuit against a South Carolina company that offered an ISA that obligated students to pay up to $30,000 for a 6- to 12-week online course providing software sales training. “You’d be blown away by what we see with program quality and the lack of diligence by ISA providers,” says Kaufman, of the Student Borrower Protection Center.
Lenaya Flowers, 30, graduated from the Houston campus of the Flatiron School, a coding boot camp, in May 2020. She found the school overpriced—$15,000 for a 15-week course—but it offered an ISA that sounded like a no-lose proposition: She’d pay back nothing till she got a job earning at least $45,000 a year. When she did, she’d give 10 percent of her monthly income to the school, up to a cap of $21,000 or 48 payments, whichever came first, she said.
After graduating, she looked for a full-time job for almost two years while taking on freelance data science projects, and she started paying back the ISA. In February 2022 she landed a position as a data analyst at a Houston company and now makes about $64,000. But she’s finding the $6,400 in annual payments tough in combination with her other student loans—in all, her ISA and loan payments will gobble about a third of her gross income once federal student loan deferment ends, she says. Given another chance, she wouldn’t take the ISA or do the program.
Whitney Barkley-Denney of the Center for Responsible Lending says her group sees ISAs as high-risk alternatives to student loans. Borrowers like Flowers sign on without understanding how the ISAs will mesh with their other student debt and get themselves stuck with unmanageable monthly payments, she said.
The Flatiron School didn’t respond to requests for comment. A notice on Flatiron’s site dated May 2019 says the school no longer offers ISAs. At least one other company, a tech sales boot camp operator named Elevate, posted a LinkedIn announcement earlier this year that it’s no longer offering ISAs either.
The ISA industry has responded to the criticism by working with four US aenators to craft a bill that would create a new ISA regulatory structure. Introduced July 19, it would give the Consumer Financial Protection Bureau formal regulatory authority over ISAs, require that borrowers receive a standard set of disclosures, and create more protections for low-income borrowers, among other provisions.
Even if it passes, it’s impossible to know whether it might halt the slide in ISA offerings.
“There was a lot of optimism that this was going to be the replacement for student debt,” says Linehan, who thinks that ISAs won’t make up more than 1 percent of education financing going forward. “I don't think it’s going to make a material dent there.”
This story about income-share agreements was produced by the Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for our higher education newsletter.