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New coding school will let students pay with share of future income

December 22, 2017

When the Kenzie Academy in Indianapolis launches its first coding classes next month, about 60 percent of the students will pay for their training with income-share agreements through which they promise to pay the school part of their future income.

It’s a novel way to fund education—one made popular in part by Purdue University President Mitch Daniels—that is starting to gain traction, especially at tech schools.

Students can choose to fund some or all of their tuition through such an agreement. The goal is to eliminate traditional student debt, said Kenzie co-founder Chok Ooi.

“We’re trying to make sure our program is both affordable and accessible,” Ooi said. Many potential students have “had a lot of student-loan debt. They’ve been unemployed or underemployed and they couldn’t afford tuition for a program like ours.”

Kenzie charges $12,000 for every six months of education, with a program designed to last two years. Students starting in January are getting a special deal: They can receive the full two years of training for $20,000 total. But income-sharing agreements are available for all students, regardless of when they start.

Under the traditional student-debt model, those students would shoulder the pressure of finding jobs so they could afford to pay off their loans. The income-share model puts substantial pressure on the school to make sure students are properly trained so they can find good jobs and pay for their training, Ooi said.

“An ISA [income-share agreement] is very aligned with the outcomes of the school: If we do a bad job training them, we eat all the costs and they don’t owe anything,” he said. “If we do a good job training them and they get a very high pay, we get to share in the upside with them.”

In fact, Kenzie graduates who don’t get a job or earn less than $40,000 a year will pay nothing. And if that remains the case for five years, the student is released from his or her obligations. The school never reaps any payments through the ISA (although it won't refund any tuition paid directly by the student).

Students who earn more than $40,000 a year (whether in a tech position or another job) would be subject to the agreement. For example, those who've financed their entire education through the ISA would pay 17.5 percent of their salaries to Kenzie for three years.

All students have a three-month grace period and the pay-back period is less for students who only finance part of their education using an ISA.

There’s also a cap. If a student graduates into a higher-paying job or develops an app that makes millions, they’ll pay off their training much faster. No one pays more than 2-1/2 times the amount he or she has financed.

“The reason I like this model is that if we don’t help you succeed, we don’t put you in further debt,” Ooi said. “But if we help you succeed, you’re paying it forward by helping provide training for new students.”

Kenzie is partnering with Vemo Education, a company founded in 2015 to work with schools on income-share agreements. Vemo is also working with Purdue University on its Back a Boiler program, which the company calls the first large-scale ISA to be offered by a major U.S. higher education institution.

Back a Boiler is a limited program that provides financing for some rising sophomores, juniors and seniors enrolled at the West Lafayette campus. Since launching in the fall semester in 2016, the program has helped 160 students fund about $2.2 million in college tuition.

Now Purdue and Vemo are working on a program meant to help other colleges and universities adopt income-share agreements by offering them best practices and technical support.

“Income share agreements align interests between students and universities,” Vemo Education CEO Tonio DeSorrento said in a statement when it launched its newest efforts with Purdue.

“This encourages institutions to invest in programs and services that increase the probability of student success,” he said. “Unlike loans, which are typically based on the historic finances of their parents, ISAs are based on the future potential of students.”

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