Training on the ISA model (Income Share Agreement): pros and cons

Our mothers and grandmothers remember those blessed times when education was free. We never heard of any exactions and extortion in schools, and such a thing as contract education at a university simply did not exist until the early 90s of the last century.

Of course, losers with wealthy parents could “break through” to the university, even then, even now. The difference is that then it was unofficial, for a bribe and not massively, but now it is quite official, massively and on a contract basis.

Haters of everything connected with the Soviet past like to say that “free cheese is only in a mousetrap.” Like, there was no free education, just a specialist, in fact, “paid” the state for his education, hunching his whole life for a small salary.

Today, as we know, everything is completely different – as they say, two in one. We have to pay for higher education, and then hunchback all our lives for a small salary, paying for a beautiful life for officials, if it is a job in the public sector, or a business owner, if it is a job in a private firm. Not all, of course, but a lot of us.

How else are there models of education, besides paid, shareware and extortionately expensive? Alternatively, in some cases, you can take the path of self-education. You can learn how to get the necessary knowledge on your own in our program ” The Best Self-Education Techniques “. But abroad and in some places in Russia, training according to the ISA model is very common, especially when it comes to short-term courses. What it is? Let’s try to explain in a simple, understandable way.

What is ISA training: a bit of history

First, let’s decipher what ISA is. This is an abbreviation of the English Income Share Agreement, which translates as “income sharing agreement” or “income sharing agreement”. The agreement is concluded between the educational organization and the student, and income means the salary that the graduate will receive when he gets a job after graduation.

This is a business model for obtaining education, according to which a person studies for free, and begins, as it were, to “return” the money for his education only after he can get a job according to the specialty received, and for a salary not lower than a certain level, which is negotiated on agreement stage.

Simply put, if a graduate fails to find a job in his specialty, or if his knowledge is assessed at the level of the minimum wage, he does not owe anything to anyone. Thus, they are interested in giving him relevant knowledge that is in demand on the labor market, so that the graduate can already claim a decent salary at the starting position.

The student is also interested in learning in such a way that they later want to pay normal money, because long and tedious work for the minimum wage is not a very good way to save money and avoid the obligation to pay tuition. Where did this curriculum come from?

The ISA model was proposed by the economist, Nobel laureate Milton Friedman (1912-2006). He outlined his idea in The Role of Government in Education (“The Role of Government in Education”) [ M. Friedman, 1955 ]. This model was first tested at Yale University in the 70s of the 20th century.

More than 3 thousand students took part in the experiment, but the first experience of implementing the ISA model was not entirely successful. In fact, only the most successful students paid for their education, and the payments stretched over a long 35 years.

The experiment was saved from complete failure only by the fact that then-future US President Bill Clinton, who studied the experience of paid education in other countries and adapted it to American realities, became interested in it. By the way, the further development of the ISA model and the reduction of the payment burden that falls on the shoulders of students and their parents has become one of the points of his election program.

You can read more about this experiment and about the history of the development of training using the ISA model in general in the review “Training on account of future salary: for whom and how does the ISA model work” [ V. Barkatina, M. Mironova, 2022 ]. In the same place, by the way, you can find specific calculations in numbers, how this model can be implemented in practice, including in Russia.

Quite briefly, the essence of the ISA-model can be described in the following words: study now – pay later. Most often, the ISA model is presented as an alternative to obtaining a loan for education and a way to avoid onerous interest payments.

A traditional education loan works in the same way as any other loan. A person must pay interest exactly on schedule, even if he has no income, and repay the body of the loan on time, even if the education received on this loan did not bring dividends.

This is the main difference between the ISA model and a traditional loan: you pay only when the acquired knowledge has been monetized , and only starting from a certain level of income.

Are there any pitfalls in training on the postpaid ISA model? How beneficial is it for each side? What guarantees and what risks do the parties that have entered into the agreement have? How does it all work in Russian realities in the presence of unrecorded income and “salaries in envelopes”? What are the pros and cons of learning with the ISA model? Let’s understand in more detail.

ISA Model: Scope

Taking into account the specifics of the topic and the ISA-model not being widely spread in the Russian market of educational services, it is worth starting with the scope of this model. The mere fact of deferred payment and postpaid ISA training carries certain risks even in prosperous countries with stable economies.

Such a factor as time already includes some uncertainty and unpredictability, because over time many circumstances can change, ranging from finances and salaries in the labor market to the student’s personal plans for his future employment.

However, we did not just start our material with a reference to the higher education system. In countries with stable economies, the ISA model works in many leading universities [ P. Karachentseva, 2021 ]. These are, as a rule, private educational institutions that are looking for ways to attract students, including the prospect of saving on tuition.

Universities practicing the ISA model:

  • Purdue University (Indiana).
  • Clarkson University (New York).
  • The University of Utah (Юта).
  • Norwich University (Vermont).
  • Northeastern University (Massachusetts).
  • Messiah College (Pennsylvania).
  • Lackawanna College (Pennsylvania).
  • Colorado Mountain College (Colorado).

These are the most famous universities where, among other options, training is practiced according to the postpaid ISA model. Of course, with this approach, there is a careful selection of applicants who are potentially able to overcome the curriculum and are serious about working in their chosen specialty.

This approach allows minimizing the risks associated with the so-called ” human factor “. In particular, the inability of the student to master the academic disciplines, the unwillingness to work in the chosen profession and the inability to present his candidacy on the labor market properly in order to qualify for a high salary.

In countries where the economy is unstable and it is difficult to predict the situation even a couple of days in advance, such long-term projects are a big question. In the post-Soviet space, training according to the ISA model is usually practiced in short-term courses that provide professions that are in demand on the labor market, mainly in the IT profile.

The IT market is practically limitless and is capable of accommodating an infinite number of specialists, and high-class IT specialists have a real opportunity to choose between top employers, both in Russia and abroad.

Thus, even if some of the students fail to complete the curriculum or drop out at the stage of employment, training on the ISA postpaid model will still be a profitable project for an educational organization.

ISA model: how does it work?

In general, understanding how the ISA model works is not so difficult. As with any other model, there are a few basic conditions here: the cost of education that needs to be reimbursed, and how to do it. At the start, an ISA agreement is concluded and a test period is usually offered, during which both parties assess the risks.

If the educational organization considers that the student clearly “does not pull” the curriculum and has no prospect of getting a normal salary, or the student himself comes to such a conclusion, the parties may say goodbye before the end of the test period without further mutual obligations.

If everything suits everyone, then the process develops in accordance with the terms of the contract: the organization trains a person for free, the graduate gets a job and, as soon as his income reaches the agreed amount, he begins to pay the agreed percentage from this amount during the agreed period.

The duration of an ISA agreement is usually from 2 to 15 years, depending on the duration of training and other nuances. You will have to pay from 2.5 to 17.5% of the income that has reached a certain mark. This mark varies greatly depending on the profession in which the person studied and the situation on the labor market.

As in foreign universities, in Russian educational structures, candidates for training according to the ISA model are very carefully selected. If a person cannot complete the program or find a job according to the specialty received, the training organization will not earn anything. Therefore, recruiters strive to find those who have a clear motivation and sufficient intellectual potential for training.

The task is not simple, however, as in any other case of finding motivated personnel. On the side of educational organizations offering the ISA model, transparency of conditions and a completely surmountable entry threshold. You can familiarize yourself with the terms of the future contract in advance.

Those who have not yet decided on a profession can study the standard ISA agreement on shared income sharing. Those who are good with English can study a specific sample ISA-contractoffered by one of the foreign educational organizations.

You can read more about the financial and legal aspects of studying on the ISA model in the article “Income Share Agreement: bondage or an alternative to educational loans?” [ P. Karachentseva, 2021 ]. There you can also find answers to the most frequently asked questions and dispel your own fears associated with such an unusual format as training using the ISA model.

It will be useful to study foreign experience in applying the model under consideration. It is described in sufficient detail in the material Improving access to education through Income Sharing Agreements: A promising tool to be managed cautiously [ L. Guerre, C Godbarge, 2020 ].

By itself, the reservation about “use with caution” already indicates that with the ISA model, not everything always goes smoothly both here and abroad. Nevertheless, today we can already say that the model has its advantages.

ISA Training: Benefits

So, the first and main advantage, thanks to which the ISA model was born in principle, is the deferred payment. Those who simply do not have the money to shell out the required amount for obtaining a profession have a poor choice: to abandon the venture altogether, take a loan, or take advantage of the opportunity to study under the postpaid ISA model.

Lending as such has a lot of pitfalls. In particular, the obligation to make payments regardless of the amount of income or changed financial conditions. By definition, lenders do not care about such an aspect as the effectiveness and relevance of the education received. The ISA model, as we have already figured out earlier, is an opportunity to study now and pay later.

The second advantage, directly related to the first, is the ability to pay only for a specific result. Agree, it is always easier to part with money if you got what you wanted for this money, you are satisfied with the result and you are, in general, satisfied with the event undertaken.

And finally, payouts are fully linked to your income. If the income is less than the initially agreed amount, you pay nothing. If you started earning and paying, and then because of the crisis or other circumstances were left without a job, you do not pay anything. If you have received the profession of a backend developer, and they are ready to take you as much as possible as a security guard in the office of an IT company, you do not pay anything. So let’s recap.

Advantages of the ISA model:

  • The opportunity to start studying, get an education and a profession in the absence of money to pay for studies.
  • Payment only for a specific result on previously known transparent conditions.
  • Linking the amount of payments to current income and the ability not to pay if the income has not reached the agreed amount or has become less than it.

Of course, in Russian realities, the question often arises about “salaries in envelopes” and a possible loophole for those who do not want to pay. Not to mention that an IT specialist can work for a third-party company abroad and not advertise his income, including for the other side of the ISA contract.

What are the risks of the ISA model for the educational organization and the student? Let’s see.

ISA Model Training: Disadvantages

Let’s start with the risks for the educational organization. Like any investor , there are enough risks. And taking into account the specifics of such a sphere as education and training, even more so.

Risks of the ISA model for an educational organization:

  • Difficulty in assessing the potential of candidates for training.
  • Dropout among students due to the inability to master the material.
  • Dropout among students due to changed life circumstances.
  • The inability of a graduate to find a job in their specialty and for a salary with a level from which payments start.
  • Decrease in income of the graduate, leading to the impossibility of payments.
  • The likelihood of fraud and attempts to evade payments from graduates.

With all the abundance of explanatory materials, there is still no clear answer to the question of how an educational organization can control the fact and amount of income of graduates. The idea to demand from graduates a certificate of income of an individual in the form of 2-personal income tax does not fully solve the problem, because salaries in envelopes and remote work outside the host country are an objective reality. Moreover, in the IT field, these phenomena are even more common than in many other industries that require the personal presence of an employee at a strictly defined workplace.

Consequently, educational organizations have to take a different path: include all risks in the cost of education and prescribe the terms of the contract so that smart, honest and well-paid graduates will compensate for all costs and give the educational organization an opportunity to earn.

And this is where the risks begin for those who study according to the ISA model. Ultimately, ISA training can cost 2-3 times more than if you simply pay for studies in a similar specialty in places where they work according to traditional payment schemes.

Of course, for those who currently do not have the money to shell out the required amount for obtaining a profession, this is a conversation-about-nothing. But for those who are thinking about different options and can potentially afford to start paying from the very start of education without any loans, you should carefully weigh the pros and cons.

For reference, it is worth studying specific calculations using the example of one organization that trains professions for work in the IT field [ S. Shimanskaya, 2021 ]. There, training as a frontend developer according to the ISA model costs from 200 to 300 thousand rubles, depending on the nuances of further employment, which are negotiated at the start. And this is for three months of study on weekdays in the daytime.

However, if you wish, you can find an annual course in frontend development costing from 80 to 110 thousand rubles, which allows you to combine your main job with your studies and not lose a stable source of income. This is something to understand when evaluating the difference between traditional tuition fees and ISA postpaid tuition.

What conclusions can be drawn from all of the above? For honest payers, there is a high probability of paying for ISA-model training much more than such training costs in reality. Can it be argued on this basis that the ISA model is the same free cheese that is only in a mousetrap? Hypothetically, this can be said about any lending and any deferred payments.

Who benefits from ISA postpaid education? Perhaps this is definitely beneficial for collectors of diplomas and certificates and other public who “love to learn” and for whom studying is of interest simply for the sake of studying, and not for any monetized result.

If such people manage to “skip” the initial filter and take a free training course , then it will be extremely difficult for the training organization to demand something from the graduate under the standard terms of the ISA agreement, which implies the start of payments upon reaching a certain level of income. People who go to school as if they were going to a party and don’t bother with getting knowledge and skills are unlikely to ever get a well-paid job and pay at least a penny for their education.

Of course, educational organizations are also not bad, and often, under the guise of an ISA model, they manage to prescribe the terms of the contract in such a way that the graduate will have to pay in any case. True, this is no longer training according to the ISA model in the classical version, but if the case goes to court, the graduate is unlikely to prove anything, because in Russian law there is no such thing as an ISA model.

Alternatively, according to the Civil Code of the Russian Federation, an ISA agreement can be qualified as a “loan agreement with special suspensive conditions for repayment” [ Electronic Fund of Legal and Regulatory Documents, 2022 ]. In more detail, the legal aspects governing this area are set out in Chapter 42 of the Civil Code of the Russian Federation.

If you are not strong in law and finance , we recommend that you familiarize yourself with the explanations set out in the previously mentioned material “Income Share Agreement: bondage or an alternative to educational loans?” [ P. Karachentseva, 2021 ]. And, of course, be sure to show the ISA agreement proposed for signing to a lawyer, since you have no other options how to study according to the postpaid ISA model.

We want you to always have the opportunity to realize your goals and desires, and our Self-Education Best Techniques program will help you achieve this. We wish you seven feet under the keel in the ocean of knowledge and never run aground: neither literally nor figuratively. And we invite you to answer the question on the topic of today’s article:





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