Colleges Are Already Ditching Income-Share Agreements

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 pre-tax 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 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 that “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 protection bureau’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. 

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 fifteen schools contacted said they’re continuing; three schools didn’t respond to inquiries.