Silicon Valley investors are funding college students’ tuition — for a price

It’s called an ‘income sharing agreement’: Silicon Valley investment firms back students for a cut of their future salaries.

Almost 60% of college graduates in the US have student debt. Collectively, these outstanding balances top $1.3T — and by Brookings Institution estimations, as many as 40% of students who enrolled in college in the early 2000s will have defaulted on their loans by 2023.

Silicon Valley investors are funding college students’ tuition — for a price

Now, student debt is also a business opportunity: a number of startups and investors are paying for the education of students in exchange for a portion of their future earnings.

It’s called an ISA

Under a traditional student loan, a lender provides a student with money, and the student pays back the loan, with interest, in monthly payments. It often takes years, or decades, to pay this money back.

With an income-share agreement, or ISA, private firms pay for a student’s tuition, and when the student enters the workforce, she gives up a percentage of her post-college salary to the investor.

Are ISAs actually better?

The ISA model has been attracting interest in the US since 2009, and companies like 13th Avenue and alternative income-based financial company, Vemo, have seen significant returns with ISA models.

Since this alternative is still relatively unknown (only about 1,000 students have signed up for ISAs at US colleges), experts believe it’s still too early to peg this as a solution to the student-debt crisis. But in a market desperate for disruption, baby steps are better than no steps.

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