Let's Talk ISAs

In Issue 4 Scaling Capital for Change, I shared my thoughts about funding sources and one of the most common immersive coding bootcamps is an Income Share Agreement or ISA. With an ISA: A participant pays nothing upfront. They sign a contract that typically includes terms around the fact that once they get a job earning more than around $60,000 they will repay the cost of their training based on a percentage of what they earn. If they don't find employment after the program they pay nothing. There are typically covenants that even if the job is not in the area where they studied, they still have to repay for the education if they land any job over the threshold. There are more details in the instrument, but those are the most relevant. There are many pros and cons to an ISA.

Setting aside whether it is fair for some students to pay more and others to pay nothing for the same education, I don't think it's predatory to leverage a fair ISA. Things I think are fair include a reasonable cap on the total cost, a low percentage of income rate, and stipulations that the job earned must be in the field training. It just so happens that a lot of organizations structure these agreements in such a way that they end up being two or three times what it would cost to pay cash. ISAs are also pitched by the providers that run them as admissions tools. They use the idea of paying nothing upfront to drive more people into a program. This gimmicky use of the mechanism often plays on the financial strain and less sophisticated buyers of for-profit education. Too much of the get-rich-quick thought process may ultimately prove fatal to ISAs across the board as consumer advocacy groups align against the use of ISA and regulators have taken a hawkish view of them.

Now that I've laid out some of the most problematic arguments upfront, on its face, you might ask how does an ISA arrangement align with apprenticeships? After all, in an apprenticeship, students are getting paid, they are not paying... In my experience where it seems to fit best is that an ISA could be leveraged as a mechanism to finance the cost of pre-apprenticeship programs that are typically unpaid learning experiences.

I believe too much attention is being paid to some very abusive uses of this financing mechanism. But, as an operator, you can structure an ISA however you want. If you are a public institution, employer, or an educator that is trying to create another vehicle to finance program costs and allow participants to pay in a different structure or pay in a different way an ISA is a reasonable consideration.

You might view this innovative financing mechanism for workforce development as a great opportunity to expand the volume of enrollment to students that traditionally would not be able to afford the training required to enter an apprenticeship. I believe ISAs have earned a bad reputation because many for-profit programs have been using them as a marketing tactic to be able to attract students. Assuming that you already have students and you've managed the cost of acquiring an ISA could be leveraged purely as a funding mechanism to increase working capital for a very expensive operation down the line (Apprenticeships).

I believe many employers would be open to helping students pay off their "debt" and share in the repayment of an ISA. Employers could also use this to keep folks sticky by increasing the rate of repayment the longer the employee stays with the organization. More conversations exploring how we can leverage public and private, as well as individual contributions to the cost of upskilling, is an apprenticeship play that is worth taking a look at. Of course, since employers have the most to gain they should be prepared to invest as well, and giving them this vehicle expands the options they have to participate.

Creating Coding Careers has worked with organizations that have experience with ISA programs in the not-for-profit sector. I think it's helpful to have nuanced conversations around ISAs and alternative ways to invest in education. We need to be able to think outside of the box and if organizations can create an opportunity where one otherwise might not exist to stretch out funding ISAs might be worth considering as a renewable learning fund. eg. If you were to take a million-dollar grant and put it into an ISA pool, as the participants come through the program and repay it, even if you're losing money in the repayment, then you're allowing way more people to benefit from that program then might be able to afford the upfront training costs.

Finally, if you are designing funding sources for a program I would not focus on 100% of your students using this financing pathway. It is a great mechanism for some people that otherwise wouldn't be able to finance this to finance it. But it also has the downside of the repayment and is typically the most expensive route given the risk involved.

If you are thinking about building a tech apprenticeship pipeline I'd love to hear from you. Please reach out to me so, I'm happy to have a conversation about what our experience has been like so far and how we can help you create great outcomes.