San Diego Workforce Partnership & Future of ISA Funds

The nature of our workforce and education is changing. Traditionally, you would graduate high school, and then attend college in pursuit of a degree in a desired subject. After earning that degree, you transition into a lucrative job in a related industry with prospects for a fulfilling career. You would be set for life. 

However, as workplaces are starting to value those who can grasp modern ideas, education is no longer a one-time deal. To succeed in the modern workplace, you must have a vast array of skills which are quickly evolving. As this becomes more necessary, it’s important that those who want to acquire these skills are able to do so.

To solve this problem, a renewable workforce fund could be established. This would be a fund providing people with the upfront capital to acquire the skills valued in the modern workforce. These funds would be self-sustaining. Thus, they’d be able to continuously issue capital to those looking to gain new skills or improve their existing skills. One way to establish these self-sustaining funds and ensure they increase access to educational opportunities would be to leverage an Income Share Agreement, an alternate method of financing over debt. 

What Are Income Share Agreements (ISAs)?

Income Share Agreements (ISAs) allow you to raise the funds you need to pursue college, a course, or a bootcamp, in exchange for committing a portion of your future income. You would not need to take out a student loan to cover tuition. Student loan debt is already approaching $1.7 trillion in the U.S., and growing rapidly. More people would be able to take advantage of the workforce’s renewable fund.

The San Diego Workforce Partnership (SDWP), a non-profit workforce development board, in collaboration with the University of California San Diego Extension School, announced the launch of the Workforce ISA Fund. This fund will issue ISA contracts to learners looking to acquire new skills, without leaving them with a large amount of debt to pay off. Workforce ISA Fund participants can pursue certificate-based programs in areas such as front end web development, digital marketing, and more. Upon completing the program, students pay a percentage of their income once they have secured a job earning over $40,000. The money invested will go directly toward financing the education of people pursuing courses in the aforementioned areas. The goal is to help them thrive in the modern workforce.

What Other Institutions Are Offering ISAs?

Colleges and vocational bootcamps are already leveraging ISAs to increase access to their courses. In 2016, Purdue University launched the “Backa Boiler” ISA Fund. The fund has already issued over 750 contracts worth around $9.5 million to students. Students of any major can raise the money they need to pursue an education at Purdue University. Then, they repay it with a percentage of their income, depending on their major and the amount they had borrowed. 

Since the launch of the program, other universities, like the University of Utah and Messiah College, have launched similar ISA funds to increase access to their programs. Further, bootcamps that offer comprehensive computer science programs like Lambda School, which recently raised a $30 million Series B round, allow students to pay for their courses through ISAs. Lambda School’s recent outcomes report indicates that within 180 days of graduation, 85.9% of students were employed in-field. This shows the potential of ISAs to increase access to quality education.

Benefits of Workforce ISA Funds

San Diego’s Workforce ISA Fund will offer a more affordable way of acquiring skills to thrive in the modern workplace. ISAs, unlike debt, are not obligations students repay on certain schedule. There is no interest that will accrue over time. ISAs allow you to raise the money to pursue your education. And you will only repay the money if you get a well-paying job after graduating. In this sense, the workforce board is investing in the success of their students. Indeed, students only pay if the workforce board and UC San Diego Extension School’s programs add value to their careers. 

Shared Incentives

One benefit of Income Share Agreements is they align the incentives of the issuing body—the workforce fund—and the student. Therefore, the issuing body is more likely to provide a higher-quality education, further promoting post-graduation student success. 

Student Risk Reduction

The SDWP’s ISA fund is the first workforce board-backed ISA fund. Although, other workforce boards have expressed interest in starting similar programs. ISA funds, like that established by the SDWP, move the risk of pursuing education away from students, onto the institution. The result is that students feel more confident in pursuing education. This is because they will not have to repay the money they raised if they do not succeed. The affordability of ISAs should encourage people who would benefit from UC San Diego courses. Indeed, they would not have to take out a loan to pay for their education. Rather, their repayment is fully contingent on their success.

Federal Funding Replacement

The SDWP designed their ISA fund to solve the problem of decreased funding for workforce boards. These boards serve an important role in local communities in helping people develop and refine their skills. According to Andy Hall, the COO of the SDWP, “federal funding for the public workforce system has been cut by about 40% across the country.” Thus, local workforce boards are having trouble accessing capital to prepare people for technology-driven careers. Hall further stated, “We were falling short creating opportunities for people, as well as our business customers who came to us looking for skilled workers. Asking customers to wait until next year for financing rings hollow when people need food on the table today.”

Workforce boards are starting to view ISAs as a method of expanding offerings. Further, they may be a way to meet demand from those wanting skills to thrive in the modern workforce. The lack of federal funding imposes unnecessary constraints on local workforce boards which serve an important role in their communities. Hence, the SDWP has developed an ISA-backed fund that would be self-funding. It would allow them to expand their ability to offer high-quality support to their communities and local workers. And they could do so without depending so heavily on federal funding.

Increased Opportunity

One of the most important benefits of the fund is that it would increase access to opportunity for those who would not traditionally be able to benefit from the courses the UC San Diego’s Extension school offers.

As the student debt crisis becomes a bigger issue—and new data arises about the burdens imposed on those with student loans, such as the decreased likelihood of owning a home or starting a business—many are reluctant to take out a loan to finance their education.

There are also many who cannot take out a loan for their education due to poor financial history, lack of access to a co-signer, or inability to access loans. The SDWP’s fund would extend opportunities for education. And it could support thousands of people looking to expand their horizons and learn more about the evolving workforce. All without having to worry about the burden of debt.

An Investment in Community

Further, this fund, because it relies on ISAs, would be perpetual. Students would repay their money, allowing the fund to issue another contract. Research from the Manhattan Institute suggests that ISAs benefit from cross-subsidization. High earners will subsidize the losses from low earners by paying more than they borrowed. This would allow the fund to continually issue new contracts, and even grow as more students succeed. Therefore, successful people would increase access to education for people in the same position they were in. Thus, the fund acts as a form of community investment if you succeed after completing your education.

San Diego Workforce Partnership ISA Fund: Current Situation

The San Diego Workforce Fund has raised $3.35 million to over the last few years. This includes a $450,000 donation from Google.org, Google’s philanthropic division, a $1.2 million donation from Strada Education Network, a non-profit in the education space, and a $1.2 million gift from the James Irvine Foundation, a private grant-making foundation based in California.

The capital raised for this program will allow around 100 students to take a six-month course at UC San Diego’s Extension school. Rather than paying upfront for the course—which would usually cost $6,500—students can instead take out an ISA to finance their education. The terms for each contract will vary depending on projected earnings for graduates of a certain course; however, the fund has stated that graduates will pay anywhere between 6% and 8% of their future income over the course of 36 to 60 months. Graduates who succeed after college will not have to repay any more than 1.8 times the initial amount borrowed: around $11,700.

The Role of Local Workforce Boards

Local workforce boards play a critical role in helping people access new educational opportunities in a certain region. These boards must understand the details of their local labor markets. Then, they must make investments into projects that would help make the local economy more prosperous. One primary role they play now is to help people who are “up-skilling” access the education they need.

Whe Local Workforce Boards Are Important

According to a Brookings Institution report, over two-thirds of jobs require medium- or high-level knowledge of digital skills. The 2018 Skills Gap Study found that 2.4 million jobs will likely go unfilled over the next decade. They cite the changing nature of our workforce as the cause.

To combat this skills gap, workforce boards must ensure people about to enter the workforce, and those who haven’t received education in digital skills, are able to do so. They need to finance adult learners’ educations, help people access new offerings, and leverage arrangements like ISAs. Together, these actions will make education more affordable for those needing to upskill, retrain, or break into new roles in tech.

Indeed, colleges and advocacy groups will play a critical role in closing the skills gap. But workforce boards are in a unique position, based on their localized knowledge. They can explore alternatives to close the skills gap, like ISA-backed learning funds.

Potential Concerns about Workforce ISA Funds

ISAs present an interesting way to close the skills gap—and, on a broader level, address the student debt crisis. But there are still a few problems to consider. 

Lack of Precedent

The first would be the lack of precedent available to indicate what the ideal workforce ISA fund would look like. The SDWP ISA fund is the first of its kind. Thus far, most ISA funds have been established by colleges or vocational bootcamps. And there is no specific model that states how such an offering should be structured to optimize the chances of success for both the students and the fund itself. Indeed, this is an opportunity to explore ISAs in-depth and research their viability. The SDWP’s offerings will play a critical role in setting a precedent for how future ISA funds should be structured.

Regulatory Concerns

There are also some regulatory issues to note. ISAs have no specific regulation on either a state or federal level governing how they should be offered and maintained. The Investing in Student Success Act, initially proposed by Sen. Marco Rubio in 2015, is being considered on Capitol Hill. Yet, the legislation doesn’t answer all the questions about ISAs and remains in committee. 

This lack of regulation means that workforce funds and other players in the market have to be more careful in structuring their offerings. They must ensure that students are protected in the arrangements. This also means issuers will have to work closely with the federal government and other service providers and colleges. This is to ensure their funds are appropriately structured and incorporate strong consumer protections and borrower disclosures.

Sen. Elizabeth Warren Expresses Her Concerns

In June 2019, Sen. Elizabeth Warren wrote letters to the Secretary of Education, Betsy DeVos, and eight colleges who are pursuing ISAs as a method of financing. In the letter, she described her concerns about ISAs. Most of her concerns were about how the Department of Education was considering exploring ISAs. More specifically, whether they had the authority to explore such a program without Congressional approval. 

Sen. Warren further highlighted some important concerns about the long-term viability of ISAs. She reinforced the lack of regulatory precedent, and expressed some trepidation about whether ISAs would perpetuate discrimination in certain majors. Warren also stated that ISAs were merely a repackaged form of debt, and she was curious about the specific benefits. ISAs are a fundamentally different security from debt. They don’t incur interest, don’t have a principal balance, and they’re contingent on one’s future income. But Sen. Warren’s comments display the nascent Butstage of the regulatory environment and how this may present an issue for the future development of ISAs.

Lack of Awareness of ISAs

Culturally speaking, there are a few concerns to note about ISAs. In January 2017, the American Enterprise Institute conducted a study of 400 college and high school students and 400 parents of current and future college students to assess their interest in ISAs. The study found that most people were not familiar with the concept of an ISA. Only seven percent of students and five percent of parents knew about ISAs. This shows that although ISAs present a new way for local workforce boards—and colleges and vocational bootcamps, for that matter—to expand access to educational opportunities, there is still a lot of work to do to raise awareness about ISAs, their benefits, and how they compare to debt.

What’s Next for San Diego Workforce Partnership and Workforce ISAs?

ISA programs have the potential to allow local workforce boards such as the SDWP to expand access to educational offerings in their area and ensure local workers have the specific technological skills they need to thrive in today’s knowledge-based economy. 

The SDWP intends to raise $25 million over the next five years to increase access to educational offerings in sectors such as cybersecurity, health care, life sciences, and more. They are also interested in exploring how ISAs could help people transfer their credentials from other countries, which is traditionally a costly endeavor. According to Andy Hall,“It costs between $6,000 and $9,000 to get international health care credentials to transfer over, plus some tests and vocational English language courses and other miscellaneous expenses.” ISAs could revolutionize the way that workforce boards operate, and reduce their dependence on federal funding to finance their important community work. The San Diego Workforce Partnership is paving the way.