Should You Consider an Income Share Agreement to Help Pay for College?

Posted in #LetsBFRANK: The College Admissions Blog on August 21, 2020

This post was written by Marie Gendron

Income Share Agreements (ISAs) provide funding for college that you pay back based on a percentage of your post-graduation salary. For some students, ISAs can be a more flexible alternative to federal PLUS loans or private student loans. We asked Micha Sabovik, Chief Operating Officer of MentorWorks Education Capital, an ISA provider, what students should consider before deciding if ISA financing is a good option for them.

Tell me about MentorWorks’ approach to ISA financing and how it differs from other ISAs in the marketplace.

I would say the main overall benefit is our funded support approach. We’re not just giving you financing and then washing our hands and walking away and hoping for the best. We’re looking at it holistically, that we’re trying to help students all the way from funding their education through their job search and working with employers to get them in front of HR professionals. That long-term view is really important for the students we work with and for the schools we work with. I think that’s the part that really sets us apart from everybody else. We’re trying to be as student-centric as possible and being very transparent about it.

What type of student can qualify for MentorWorks ISA financing?

To qualify, a person must first of all be:

A US citizen or permanent resident
18 years of age or older
Not delinquent in any current payments or loans

We then review candidates to decide if we can invest in their professional future. We obtain credit reports primarily to make sure they don’t have any delinquencies, but we do not consider their credit score in our underwriting process. We look at the candidate holistically, including their transcripts, their resume, jobs they’ve held, their background story—what hardships have they had in their lives that they’ve overcome to get to the place where they are today. We’re looking for grit and determination.

We’re looking for people that want to set themselves up for success and they have worked hard to do that, but haven’t had the financial or social capital to do it on their own. We want to help those people get ahead in life. There is data showing that having a Bachelor’s degree, Associate degree or a skills-based certificate can help you earn additional income, but we know that completion and employment access are key to leveraging this education. We have seen in the past, for example, that a $5,000 income share agreement might be the difference between a person finishing or not finishing their education.

Should ISAs replace subsidized or unsubsidized direct federal loans or scholarships?

No. We want students to select inexpensive or free sources of money first. Certainly, any scholarships or grants—money they don’t have to pay back—should be taken first. The federal direct subsidized and unsubsidized loans should be considered next because those interest rates typically are really good. We are more comparable to federal PLUS or private loans. Students should carefully compare all the terms on ISAs and loans, making sure that they’re doing what’s best for them.

We certainly have conversations and we have our online comparison tool, which can help you compare ISAs with other loan options. We aim to be very transparent. Students should also talk to their college financial aid office or other people that can help them make the best decision possible. Just because an ISA is right for one person does not mean it’s right for everybody.

Do students need to complete the FAFSA to be eligible for an ISA?

No, this is separate from any federal funding so the FAFSA does not have to be completed for the income share agreement. But obviously, if you want to be considered for scholarships, grants, federal loans, work study, you’ll want to complete the FAFSA to make sure you’re eligible for all of those and that you’re doing all of those pieces first. Make sure you’re eligible for the lowest cost financing that is available.

Some may argue that there’s a disincentive to increase your income because your payment is a percentage of your income and that payment will go up as your salary grows. How does MentorWorks address that?

We cap the maximum amount that students will pay at 1.5 times what they financed. So, if you financed $10,000, you would have to pay back a maximum of 1.5 times that amount, or $15,000. You know that going in. In addition, we are one of the few ISA providers that also allows you to pay back early. So, if you pay back in the first year, your cap may only be 1.18, or $11,800. We are taking into consideration that we really want our students to do well. It’s a benefit to them and it’s a benefit to us. Also, payments made by graduated students support the funding of education for the next generation of students.

In addition, this is a very outcome-based program. We have a lot of downside protections built-in for students. We offer a 24-month deferral period if you lose your job. If you have more than 24 months of unemployment or underemployment, then we reduce the payment months, effectively forgiving payments. We also have minimum salary requirements before you start paying.

We also have the Talent Accelerator Program, which helps you prepare to find a job and can get you in front of employers. So, we have all those different pieces that we hope the student feels—as we feel—that we have the student’s back throughout this entire process. Our community really doesn’t stop when they graduate and get a job. We want them to come back and give back to other folks who are going through the program as well. That’s why we have peer mentoring and income-share discounts built into our programs if they come back and help other students who are going through a similar situation. To be a peer mentor, you have to go through the Talent Accelerator Program.

[The Talent Accelerator Program is a structured and content-driven program that comprises six online modules focused on: designing a job strategy; resumes and cover letters; LinkedIn and social media; interpersonal skills; interviewing; and considering a job offer and negotiation.]

Is that career support approach unique to MentorWorks?

There are some income share agreement providers that are offering some sorts of career support. But we’re pretty sure we’re the only one that offering the digital, asynchronous career support available through the Talent Accelerator. We have a really terrific team that has had lots of enrollment, financial aid, career, and advising experience throughout their careers. We’re a very student-focused team, so the robustness of the Talent Accelerator Program can’t be matched by any other income share agreement provider. In addition, we are connecting students directly to employers. A lot of ISA providers are doing a little bit of the types of things we’re doing, but they don’t have the holistic, robust approach that we have.

Is there a limit on the amount of financing students can receive through an ISA?

Our target range is between $3,000 and $10,000. We will fund more based on need. We are currently funding one-year programs and the final year of two-year programs at BFIT.

Where do the funds for the ISA come from?

We are supported by investors who care about social impact. We also have received a $1 Million grant from Liberty Mutual. We believe there is a way to marry student benefits to a pool of people who actually want students to get ahead and reduce their debt burden. That’s part of the reason why we’re working with double bottom line institutional investors, as well as social impact investors, to make sure that, at the end of the day, we put students first. We have turned down money that is not going to put students first. That is something that we want to be very mindful of going forward. Everything we do is done through the lens of helping our students and the schools we work with to move forward.

For ISA investors, what’s the draw?

For social impact investors, it’s a way to give back and make a marginal return so they can replenish their fund and help even more students. For institutional investors, it’s a way to diversify their portfolio and also have an opportunity to make an investment in the education space.

Benjamin Franklin Institute of Technology (BFIT) has partnered with MentorWorks Education Capital to offer ISA financing. BFIT Director of Financial Aid Shani Wilkerson explained why the college launched the pilot program: “With an Income Share Agreement, our students in selected majors can have their out-of-pocket billable expenses covered while receiving industry-specific mentoring and professional development. By replacing traditional private loan options that can lock a student into repayment terms averaging 10 years, an ISA can be paid in full within 5 years (on average) or sooner – without a penalty. It gives our students the peace of mind knowing that their financial circumstances have not created a barrier to them furthering their education.”

Learn more about the MentorWorks ISA at BFIT

Visit our Making College Affordable web page

Learn more about MentorWorks

Visit mentorworks.com

At Benjamin Franklin Institute of Technology (BFIT), we are committed to creating opportunities for any student who wants to work toward a better future. And we promise to always provide the facts you need to make an informed decision about your education.