edly Marketplace on Impact ISAs

Summary: ISAs as a Better Alternative

As merit-based investments, ISAs can play a vital role in alleviating the student debt problem, increasing education access and affordability for current and future generations

The payoff for graduating from high-quality institutions has never been higher. College graduates expect to earn $1 million more in lifetime income than those with a high school diploma, and the payoff for those earnings post-graduate degrees is similar. Many vocational schools and skills academies are also posting superlative student outcomes.

However, the private student loan system has created barriers to the education and skills training needed for today’s workforce. Graduation rates are low nation-wide, and financial stress caused by student loans is a major cause. Not only has affordability decreased, but accessibility, too. Americans’ negative experience with student debt is shrinking the applicant pool because private student loans are regressive and create perverse incentives for schools.

edly income share agreements (ISAs) are by definition affordable, and are preferred by students as an alternative to private student loans. ISAs match students’ ability to pay with deferred tuition payments. Designed properly, ISAs link the cost of education to the value it creates, incentivizing schools toward more responsible, student-centric behavior.

Private student loans require high FICO scores and co-signers. In this regressive system, Americans find it difficult to pay for education if they don’t have an already-high income or a wealthy family.

edly ISAs do not require FICO scores or co-signers. Investors on the edly platform also seek to fund tuition for all students, regardless of their financial  field of study.

Investors on edly back students based on their potential, not their past. And certainly not based on their parents’ balance sheets.

edly Schools

edly seeks to fund ISAs at schools that are educationally and societally impactful.

For example, the edly marketplace funds ISAs at V School, a vocational school where students from all backgrounds focus on mastering skills and experience needed to excel in coding, design and other careers in the tech industry.

V School reports an 88% graduation rate and a median salary of $72,000 for 2019 graduates. One-third of its students identify as female, which is double the tech industry’s current rate. Additionally, one-third of V School students are veterans.

edly President Chuck Trafton explained the impactful nature of ISAs on the recent Skills Podcast with Micah Merrick:

ISAs help level the playing field for those who are often left behind in our current financial system. For example, at the Holberton School in San Francisco, more than half the students are persons of color, and 30% are women. ISAs are core to the school’s mission, and grads’ average salaries are higher than MIT or Stanford. Affordable ISAs like Holberton’s are helping change the landscape in Silicon Valley and creating a positive impact in the tech industry worldwide.

Another edly issuer, Bottega, is a software company and an accredited school. Approximately one-third of its students identify as female, double the tech industry’s current rate.

“We’re proud that our flexible financing increases student access. It’s helping us change the game.”

– Eric Wold, Bottega CEO

Bottega reports an 85% placement rate for full-time students and a median salary of more than $60,000 for 2018 graduates.

Aligned Incentives

edly requires that schools share “skin in the game” via ISA structuring to align school interests with the students’.

“ISAs create financial incentive alignment between education providers, capital providers, and students. Unlike the student loan system, wherein schools earn the same amount of tuition revenue regardless of whether a student does well or poorly after graduation, ISAs tie the school’s fate to that of its graduates, incentivizing schools to teach workforce-relevant skills, provide support to improve retention and completion, and help students navigate the job market. Where the current student loan system promotes access to admission, ISAs could promote access to socioeconomic mobility.”

– Christensen Institute, “Unlocking the potential of ISAs to tackle the student debt crisis” – full report

Schools

If you are a school administrator with high-impact students, please click below.

Investors

If you are an impact investor, please click below.

Since ISAs are new, edly published its ISA Principles in 2019 to inspire the industry toward best practices that allow for ISAs to flourish as a driver of education affordability, accessibility and quality.

edly ISA Principles

edly agrees that it will:

1) Work to offer an alternative to private student loans which is both more affordable and more flexible.

2) Ask schools to have “skin in the game” to ensure alignment of interests with student careers and actual earnings.

3) Seek tuition funding for all students regardless of the field of study.

4) Never use FICO or similar credit scores because they are biased against certain groups of students and generally not appropriate for young people.

5) Ensure that there is a reasonable minimum income threshold below which students would not need to make ISA payments because it would be an economic hardship.

6) Ensure that there is a reasonable cap on the total amount of payments a student would make (related to the cost of tuition) so that they never pay too much regardless of success.

7) Give students time to find the right job after graduation.

edly asks that students:

1) Use their best efforts to make on-time payments each month as required by the ISA agreement.

2) Report salary and raises accurately and on time as they change as required by the ISA agreement.