A lot of students persist through the early years. Once they get into their junior or senior year, though, when financial aid packages are smaller, they tend to reduce their course loads in order to work more. That choice prolongs students’ time to completion, and there’s an opportunity cost for extending the time to graduation.
In 2008, the University of Utah’s six-year graduation rate stood at 55%. So President Watkins made it her primary mission to help increase that low rate. Today, the school has improved its graduation rate to just over 70%, which is one of the biggest improvements seen among large public universities.
Dr. Courtney McBeth, Special Assistant to the President at the University of Utah, joined the Enrollment Growth University podcast to talk about the potential of income share agreements (or ISAs) as a creative last-mile financing option for students.
What Are Income Share Agreements (ISAs)?
“An income share agreement is a financial obligation where students receive money to pay for their educational costs,” Courtney said. “In return they pay a percentage of their earnings once they graduate. “
It’s an equity based tool, different than a loan because there’s no principal balance and accruing interest that students have to pay off. Rather, the obligation is constructed around a small percentage of students’ future earnings.
The University of Utah’s program is called Invest in U: Paying Today’s Tuition With Tomorrow’s Success.
“In this pilot program,” Courtney explained, “our terms are such that all of our majors pay the same income share percentage.”
Once a student graduates they pay 2.85% of their monthly earnings as their ISA obligation. And the length of the term of that is dependent upon what their major is and how much they took out.
Income share agreements are not completely new. Yale tested them several years ago, but they’ve really become salient and pertinent over the last several years.
Who is Eligible for an ISA at University of Utah?
ISAs are a somewhat complex financial aid tool, so it’s important to amplify and communicate the components of that tool as clearly as possible.
“We decided to go with one income share percentage to help us simplify the messaging and help students really understand what this is before they decide if it’s the right option for them,” Courtney said.
University of Utah students meet with a financial aid advisor who’s highly trained in this area, and that advisor goes through all of this with the students. In the pilot program, eligible students are seniors who are within 32 credit hours of graduating. They’ve already picked their major and are well on their way toward graduating.
“Right now we have 18 eligible majors and we’ll likely be expanding that pool here soon,” Courtney said. “We picked a variety of majors, so we have majors that are in nine different colleges or schools. It was important to us that this be seen as an option for all majors and not just certain STEM or business majors.”
What Metrics Will Determine this ISA Pilot’s Success?
If people aren’t taking out the ISAs, the model will not work. At a fundamental level, that’s the uptake rate, but more nuanced and more important are student’s perceptions and the best ways to communicate about this type of tool.
“You start getting into a lot of things with dealing with financial literacy and financial stressors on students,” Courtney said. “And so we’re learning a lot and it’s helping inform a lot of practices in the University of Utah — where we’re doing well and where we can do better.”
Next-Steps Advice for Launching Income Share Agreements
The first question you have to ask yourself is: What is a problem or a barrier that you’re trying to overcome at your institution?
So there’s the institutional goal and the institutional alignment. Being thoughtful around how an ISA might address a certain institutional goal is paramount because fundraising, developing a program, and implementing it is no small feat.
“It’s a big lift, and it’s fun. We’ve brought a cross campus team together and are putting innovation at the forefront,” Courtney said, “And if institutions are interested in income share agreements, we would invite them to look at our website.”
If you don’t use iTunes, you can listen to every episode here.