Blog

Posted on April 29th, 2020 in Eleven Fifty Academy
Which Bootcamp Financing Option is Best? ISA vs PISA

Two popular ways to finance a tech bootcamp are Income Share Agreements (ISAs) and Progressive Income Share Agreements (PISAs). While similar, there are some critically important differences between the two that make a huge impact on how much a student actually ends up paying for her or his education. 

 

What is in ISA?

In an ISA, a student agrees to pay back a certain percentage of his or her income once a job is acquired after graduation.

Typically, the agreement includes a small application fee (for example, $100) and no further payment during one’s education. 

However, once a student graduates, the student is required to pay back a percentage of his or her gross income (for example 13.5% of salary after graduation) every month for a certain length of time.

The student continues to pay a share of gross income for a designated time (such as 4 years), which does NOT STOP when the cost of the student’s education is covered. 

Because the ISA industry is still unregulated (i.e. “The Wild West”), students don’t understand that they can be lured into a contract that is very detrimental to them. For example, some training providers will suggest that the “cost” of the education is only $100 and that nothing is to be paid back until and unless the student gets a “good” job. The part that is often not explained by the school is that the tuition was increased almost double to cover the cost of the investors who are seeking high profits.  In reality, a similar education can be found for usually about half the cost (and often in half the time and with better proven outcomes such as better placement rates and better starting salaries). The student doesn’t figure this out until he or she is stuck paying an enormous cost for the actual education for the 4 years after graduation. The student is locked into a contract with no recourse. This can result in “effective interest rates” or “effective annual percentage rates” (APRs) that are at “loan shark rates” (or usury rates, as defined in the laws of every state).

EXAMPLE: Susie Student enters an ISA agreement to pay for bootcamp, which costs $24,000. When she graduates, she gets a “below market” job with a salary of $36,000 because her skills were not quite up to par with graduates of other schools, so she owes nothing for the first year because she is under the school’s threshold of $40,000 that would trigger the 4-year clock of payments starting..

Then, in the second year, she gets a 20% raise to $43,200. It’s not uncommon to have substantial raises each year in the tech industry because experience counts for a lot. Therefore, she starts making payments of 13.5% of her monthly income toward her ISA, which works out to $5,832 for that first year. Then, she finally gets a raise the next year to the “average starting salary” of many schools that offer similar programs at half the price. Susie has already lost two years of having a competitive salary, but she still has 3 more years of payback at salaries of $54,000, $64,000, and $70,000, with total payments of $7,290, $8,640, and $10,125, respectively, with a grand total of $31,887 that Susie must pay. (It’s no wonder that ISA’s are sometimes called “Indentured Servitude Agreements”). Between taxes and the ISA, Susie is barely taking home half her salary for the first four years.  

When using a “fair cost of education” of $13,500, then the effective annual interest rate is about 34%. Usury (“Loan Shark”) Rates start at 21%. The school will of course try to argue that the cost of education is really $24,000, but the easy way to reveal the misrepresentation is to ask the percentage of students who use the ISA versus plopping down $24,000 for this same education (get them to put in writing the number of students who pay the full amount, cash out of pocket).  Or ask their competitor what was charged for the same education prior to ISA’s coming to that school… that’s the TRUE cost of education.

But Susie’s woes aren’t over… she missed out on about $40,000 of income over 4 years that she typically would have made through a similar program that only costs $13,500 and can be completed faster. With $40,000 more income, the ISA would have taken yet another $5,000 from Susie (totalling about $37,000 for an education that should have cost about $13,500), making the effective annual interest rate about 44%. Obviously, Susie is shocked at the way things have worked out.

And a big irony of ISA’s is that the more successful you are, the more you pay.  Hopefully, as regulations are enacted by Congress and states, schools that offer ISA’s will be required to share the “effective interest rates” for the ISA, at typical salary starting rate and growth rates in the field of study.  This is required for all student loans, mortgages, etc… under the “Truth in Lending” laws that have not caught up with ISA’s.  And schools that offer ISA’s will probably be required to show the cost of comparable education that delivers comparable outcomes.  For the sake of students, we can only hope it comes soon!

 

What is a PISA?

A PISA borrows from many of the original ideals of a traditional ISA, but provides substantially more benefits for students. It’s also unique to Eleven Fifty Academy. 

Scott Jones, Eleven Fifty’s founder and president, wanted to create an option that helps students achieve their goals without creating excessive post-graduate financial strain. 

Like an ISA, the student pays a small application fee (again, about $100) and doesn’t pay for the PISA during the 90-day training experience. Once the student graduates, he or she doesn’t start paying until landing a job making at least $42,000 (which is a higher threshold than most ISAs).

When a student starts making $42,000, only then is merely 5% of your monthly income (NOT 13.5%) toward your PISA. Perhaps even more importantly, there’s 0% effective interest and no specific terms that require a successful graduate to keep paying the total amount of time. The successful graduate only pays back the amount of the PISA that helped fund the student’s education. That’s all.  This is estimated to take 4-8 years to pay back depending on the amount of the PISA and the salary levels, but the student never pays more than 5% of income, and the student never pays more than what was borrowed, which means an effective APR of 0%.

Rather than being funded by profit-hungry investors like ISAs, the PISAs are funded by Federal, State, and Charitable sources initially.  PISA repayments from only the successfully-placed graduates then contribute back to the PISA fund to support future students, making this much more satisfying than a loan; PISAs are a “Pay it Forward” system supporting a community of budding tech professionals. 

EXAMPLE: Steven Student enters a PISA agreement for her full time web development bootcamp, which costs $13,500. The majority of Eleven Fifty Academy students get scholarships or grants totaling a few thousand dollars up to over $10,000.  The remainder can be covered by a $5000 to $10,000 PISA. In the case of Steven, let’s assume he takes a $5000 PISA, which is the most common amount needed by most students at Eleven Fifty Academy currently.  

When Steven graduates, he gets a job with a salary of $54,000 (which is the average starting salary for hundreds of Eleven Fifty grads already). Average second year salaries for Eleven Fifty grads are $71,000, so let’s assume this amount for Steven too. Then, he gets a jump to $79,000 and then $87,000 in his 4th year.  At 5% of salary his first year, Steven has already paid back $2,700 of the $5,000 he owes. So, before the end of the second year, Steven has completed payments for his PISA, and he has the pride of knowing he’s helped fund another student into Eleven Fifty’s uniquely transformative program that delivers superior outcomes: better graduation rates, better placement rates, better starting salaries, and a more rapid education (which represents opportunity cost of earning substantial income and more real-world experience).

Eleven Fifty’s funding from our partners, grants, and student tuition helps make this special program possible. The PISA option, paired with Eleven Fifty’s short 90-day experience, overall lower cost, and most importantly, BETTER OUTCOMES, helps students graduate with less obligations and creates more accessible ways to make an investment into dramatically changing his or her future. 

Ready to launch into a new field that’s much more affordable and has much better outcomes? Talk to our admissions team about your financing options, including PISAs, scholarships, and GI Bill funding.

SHARE

RELATED POSTS