“Deferred tuition” is betting against yourself

Matthew Henry / Burst / Used under licenseA few years ago, I wrote about income share agreements. ISAs are a novel way of financing higher education. Under this model, rather than paying tuition, a student agrees to pay a percentage of their future earnings back to whatever entity agrees to finance the person’s education now. It’s now called deferred tuition, and it’s still a bad idea.

When I wrote the original post in 2014, it cited two startup companies working to make ISAs available to students: Upstart and Pave. Both companies have moved on from education financing, and now instead offer consumer loans. But the idea of ISAs is very much alive. This recent Washington Post article was largely fluffery for a company called Vemo Education, which finances ISAs — rebranded as “deferred tuition,” but the same underlying concept — for dozens of colleges and universities around the country.

Vemo is quite right to say that education financing is a mess. Different students wind up paying wildly varying amounts for the same programs, because of various scholarships, workstudy agreements, and other forms of financial aid. Vemo also, at least according to the Post, has taken one of the major risks for successful graduates out of the picture, by capping the amount an individual would need to ultimately repay.

But there are a lot of caveats here. And as you might expect, they generally do not work in favor of the student.

The company is cozying up to universities with presentations like this one, where they make the case that ISAs provide universities with new revenue if they push students into ISAs instead of providing some scholarships. This would make the actual cost of education go up for those students put on deferred-tuition arrangements instead of scholarships. As the Post article notes, “The terms can vary, notably the length of the agreement and the salary percentage.” This makes estimating how much your education will actually cost you more difficult, not less. And that’s hardly the only problem. In discussing ISAs, I said in 2014:

Because these agreements define the investment as being in the individual, and not the specific career for which you received education funding, you would still owe a portion of what you make for the term of the agreement no matter what kind of work you wind up doing.

In other words, if your degree gets you nowhere, and you have to switch careers to something entirely different, you may still owe a portion of your income from that new career. (It’s unclear whether that would be the case with Vemo, precisely because they’re opaque about the terms of their agreements.) You could rightly argue that the same thing happens with existing student loans: You have to pay them back, no matter what kind of work you’re doing to make the money required to do so. But it undercuts the idea that ISAs amount to someone else supporting your achievement of a degree. They’re not. They’re investors, hoping that you can be tempted with money right now to get something you want but can’t afford on your own. The repayment terms are distant and opaque by design. Even that name, “deferred tuition,” is carefully constructed to make you think you can get your education now and just pay for it at some undetermined future time from some undetermined and not-yet-existent pile of money you’ll surely have just lying around. Notice how Vemo’s website entirely leaves out any mention of what percentage of future income they want, or how long they’ll be taking it for.

And by committing a percentage of your future earnings, you are agreeing that the more successful you become, the more expensive your education will become. That’s not necessarily a bad thing — the morals of it are certainly debatable — but it has the effect of punishing success.

I called ISAs “a classier form of indentured servitude” in 2014, and whether you call it an ISA, deferred tuition, or anything else, the same is true now. This model of financing higher education, to whatever degree it winds up being applied in mental health, is good for investors and universities, who will be the ones to profit. It will not be good for students. It’s the educational equivalent of a payday loan. Don’t do it. Instead, research the hell out of how much your program will actually cost, and use that as a key consideration in your decision-making. Even similar educational programs can cost wildly different amounts depending on where you go. And while your pedigree may matter in some situations (such as working under specific faculty to eventually get hired within their professional network), for most people wanting to get into psychotherapy, the specific university where you get your degree will have little to no impact on the jobs you eventually get.

There is work to be done to clean up the financing of higher education. That work should be to benefit and protect students and graduates, not to pile on a new way of profiting from them. Vemo would, I’m sure, argue that their model protects the most at-risk students by limiting how much they would owe if their degrees do not lead them to professional success. But the fact that they are pitching deferred tuition to universities as a money-maker tells you all you need to know about who this idea is really designed to benefit.