Bundling and Unbundling Education
The proliferation of Income Share Agreements — a document that allows you to pay for college in exchange for a portion of your future income — has proved to be a solution to the student debt crisis. Rather than taking out a loan from a private or government lender, a student can instead seek financing through an ISA, which will allow them to raise the money they need for their education up-front, and repay the money as a percentage of their future income. This idea has been explored for years and was first theorized in the 1950s by economist Milton Friedman. More recently, there have been a new set of companies using ISAs to democratize access to education and opportunity — from vocational schools to traditional colleges.
One of the most notable colleges exploring Income Share Agreements is Purdue University of Indiana, which created the “Back a Boiler” fund back in 2016. This fund allows students from any background and who are pursuing any major to raise the money they need to pay for their education at Purdue — but first-year students cannot borrow from the fund. The goal behind the fund was to help ensure that as many students as possible could attend the institution, and to make it easier for students to finish their education without worrying about repaying the debt they had incurred. Thus far, over 759 contracts have been issued by Purdue and they have recently raised $10.2 million for “Fund II”, which aims to increase access to ISAs as a funding method for students.
There have been a number of other institutions such as Lambda School that have attempted to integrate ISAs into their core services, in order to allow people from any background — irrespective of their financial history — to receive a quality education. In exchange for participating in Lambda School’s nine-month program, students agree to pay 17% of their income for the first two years they are employed after graduation. Students will only repay the money if they are making over $50,000, and the total repayment is capped at $30,000. Students can also opt to pay $20,000 upfront for their education if they would prefer.
Many articles and essays have targeted the common benefits of ISAs, including incentive alignment and increasing access to opportunity. Yet there is another benefit that is discussed less but is arguably the most impactful aspect of the agreements — they will change the way we look at education.
Income Share Agreements, because of their aligned incentives, mean that the school will only earn a return if they help the student succeed and get a job after graduation. Therefore, the school must do everything they can to ensure that the student is ready for a job and is prepared for any interviews they may have to complete. Lambda School and other institutions who offer ISAs as a funding method have started to adapt their services in order to ensure that their graduates earn enough to repay their ISA. In the end, if these schools do not help graduates succeed, then they will not be able to survive.
Both vocational and traditional schools using ISAs have had to make changes to their offerings so that their students are put on a strong path for success after graduation. Universities and private educators used to be only interested in the academic side of learning, but they are now forced to make clearer the specific value of what a graduate is learning and spend more time investing in their success. In the earlier stages of universities, one of their main benefits was that students had access to a great library that had all of the information that they desired. In addition, lectures could historically only be audited while in an education institution. However, the rise of the internet has democratized access to books and essays, and lectures, and so universities have had to adapt to compete with new offerings.
ISAs will likely cause universities to focus more on building employability and career skills in the future. This is because that is what students need to succeed and if schools that offer ISAs don’t recognize this, then their graduates will have a lower chance of succeeding. In a sense, ISAs are introducing a new pressure on universities to update their offerings based on the changing labor market and the rise of technology, and move into the 21st century. Lambda School is one of the best examples of a company that is bundling education through ISAs.
Lambda School has recently started offering the “living stipend” for their students. Those who are eligible will receive a monthly stipend of $2,000 for the duration of their education at Lambda School, which can be used by students to cover their housing and other living costs. The terms of the ISA are adjusted in this case to ensure that Lambda can earn a return from this investment. The goal behind this was to help maximize student success by ensuring that everyone had adequate housing and access to the necessities for living. If a student has poor housing and is living with very little, they make for less effective students and are often unable to retain information at the required rate in high-intensity courses. Lambda identified this as an issue, and started the living stipend to ensure that anyone who needed help could receive it and therefore have a better chance at succeeding in the future.
Where could this go in the future? As ISAs become more popular, I think that colleges will start to offer more services to help get graduates hired. Most colleges already offer hiring events and access to a career counselor, but the university will need to invest more time to ensure that graduates immediately get a well-paying job so that they can earn money back from the ISA. This may come in the form of developing closer partnerships with local startups, or giving students more freedom in their learning to take classes outside of the subject they are studying — all with the goal of helping give students a better shot at succeeding. ISAs will pressure universities to become more progressive and to compete with the likes of Lambda School, because if they don’t up their game and make it easier for graduates to get hired, prospective students may decide to attend a bootcamp like Lambda (at least, if they are interested in technology).
Colleges offer a variety of different things to their students: a four-year course, extra-curricular activities, a network of students, access to libraries and university resources, training for a new job, among other things. Colleges that use ISAs will start to eliminate the parts of their courses that don’t matter and instead focus on helping people get a job. For example, Lambda School has focused primarily on providing a high-quality education and helping people to enter a fulfilling career in coding. While they have a strong student alumni community and a good network of students which people can access, they are focused solely on those two aspects, rather than services such as extra-curricular activities.
The real benefit of the bundling and unbundling of education will most likely be realized in the private sector with schools such as Lambda School, Make School, and Holberton School. Make School, for example, has developed a partnership with the Dominican University which allows them to offer accredited Computer Science degrees to those who participate in their two-year course (half of the four-year term traditionally offered by universities). Lambda School has developed an extensive hiring network including startups, small businesses, and large-scale organizations. This allows students to tap into a large network of people who are hiring immediately after they graduate, and Lambda’s close relationship with these employers makes the education they provide more recognizable to the employers — they know the high-quality of Lambda’s offerings.
I believe that ISAs will also encourage companies like Lambda School to offer mini-courses in areas such as liberal arts or personal finance, which one could traditionally audit in college. The idea behind this is that Lambda is focused on developing successful graduates — they only earn a return if their graduates succeed. Perhaps Lambda and other bootcamps will start to offer small modules that their students can participate in throughout their tenure which allows them to broaden their horizons. Indeed, this may be an example of adding unnecessary services to the “education bundle” like we have seen in universities. On the other hand, it would help Lambda School students become more well-rounded individuals and acquire knowledge in other subject matters which may make them more attractive to employers.
ISAs may also create a new type of school focused on helping people discover what they want to do with their life. The decision of the career one wants to pursue is long and difficult, and for many colleges allow them to explore themselves and discover their specific interests. High schools push too many people into college before they have gathered enough data to make an informed choice about their future — and they end up changing career or dropping out due to a feeling of dissatisfaction. Also, even making the choice of going to university is you stating you want to pursue a specific industry — if you go to school for medicine, you are going to be primed to get a career in medicine. What about for the people who aren’t ready to make that commitment?
Perhaps an ISA-backed course in the future would be created that focused solely on helping place people in a variety of different industries they are interested in so they can evaluate them successfully. Colleges could focus on providing a quality education in traditional industries which is what they are best at, and another company or course backed by ISAs could focus on helping students discover their passion.
This could take the form of a three-month program that focuses on informing high school graduates about their next steps, and what they need to do to break into their desired career. Students could take a two different work placements in the course in industries they are passionate about, so they have the data they need to make an informed decision about their future. They could also be given direct one-on-one career support from experts in specific industries and be mentored, which universities struggle with because their core focus is education, not mentorship.
There will also be a more macro impact of ISA bundling on the entire education sector. As institutions like Lambda School start to become more recognized and are seen to be a valid path for people interested in technology, the value of credentials that are offered by colleges will go down. Indeed, the very fact that Make School has compressed a four-year course into two-years attests to how although people value a college degree, there is still room for change. In the future, students may leave high school and decide to go to the relevant vocational school for whatever career path they choose, and skip out on college altogether. 
I also think that, on this macro level, the government will also have to change high school to prepare students for the changing workforce. Right now, most schools have a vision that there is only one track toward success: mandatory elementary, middle and high school, followed by four-years in a great college, and then one goes straight into a well-paying job.
If more high school students recognize that the credential offered by Lambda School is legitimate and valued by employers, then schools will have to adapt to support this viewpoint. High schools will no longer impose upon their students the “traditional path” of education: you graduate from high school with good grades, then you go to college for four or more years, and then you get a job. Rather, they will be focused on preparing people for the changing working environment and help educate high school students on all options available — not just college. Indeed, the one-track system of education will die out. 
The bundling of education will also expand outside of career support. Perhaps in the future schools that use ISAs will start to offer access to better mental health services for their students. Students who are more mentally healthy will be able to recall and retain information more effectively, thus preparing them for success. This would increase the chance that the educator — institutional or vocational — will earn a return. Or perhaps educators will give students more independence over their learning so that they can discover their passion at their own pace, and are therefore more likely to generate a high return in the future.
These are just a few examples of what ISAs could do to bundle and unbundle education, and in the future we will likely see even more ambitious experiments that aim to help people get hired quicker. Private companies have been unbundling traditional services for years, and have changed the way we value credentials. The work of Lambda School, Make School, and the dozens of other vocational schools using ISAs raises one important question: what other parts of the university will be unbundled? NewCraft is trying to address the issue of finding a paid internship, SharpestMinds is trying to help people get paired with a good mentor in the data science industry — two roles traditionally taken by universities, but not their primary focus.
A strong GitHub profile is now seen as just as valuable — if not more valuable — than a college degree to programming employers. The same applies to Behance or Dribbble for designers. This is just “Generation One” of ISAs — there is still a long way to go. Incentive alignment between the school and the lender will drastically improve the overall quality of education, and unlock a great amount of economic value for society. Both vocational and traditional schools will be forced to discontinue ineffective services and focus on helping graduates get hired into a good job as quickly as possible, therefore helping students become more successful. Awareness of ISAs has grown significantly in recent years, especially in 2019, and as they grow, institutions will start to bundle and unbundle their services and put students first. 
 Lambda School has indicated their interest in expanding over to medicine and nursing education in the near future. There are also companies such as FlockJay which are experimenting with ISA-funded sales education programs. As ISA become more popular, I believe that they will cover a wider range of vocational industries and thus amplify the effect on credentialing.
 Interestingly, high schools may also have to update their offerings to ensure that people are ready for the different requirements that future vocational education companies impose.
 Cite: U.S. Education Review by Union Square Ventures