Debt Free Education IS possible

Holberton Trustee NE-YO and I were guests this morning on Yahoo! Finance to announce our partnership with Edly, which started with a $2M transaction to help Holberton School provide debt-free software engineering education to more students. By allowing private investors to invest in top schools ISA, we are, with the help of Edly, taking a step forward in making high-quality education available to the masses, because right now, our education system is broken. Check out the interview here and keep reading to learn about the broken system and how it needs to change.

American College Graduates are in Crisis

Millions of Americans hold $1.56 trillion in student loan debt, much of which they can’t afford to repay. It’s predicted that 40 percent of student loan borrowers may default on their student loans by 2023. Worse yet, the trends are getting worse, not better. Students graduating in 1992-93 were, on average, less than $10,000 in debt. In contrast, borrowers who graduated in 2017-18 were in debt an average of $30,000. That’s a 3X increase over the past 25 years, vastly outpacing the rate of inflation or job growth.

The Tremendous Impact of Student Loan Debt

The consequences of being in debt are significant. Not only do borrowers deal with the stress and pressure of paying back their loans on top of their daily bills, they are also getting hit with long-term economic repercussions. According to a report from Meet Summer, graduates weighed down with student loan debt have less financial freedom; it’s harder for them to save for normal milestones such as cars, marriage, families, homes, or even retirement. They also have fewer career opportunities, given the costs of starting or working in a new business which could carry more potential upside, but also higher risk. The report states that 65 percent of student loan borrowers reported having less than $1,000 in their bank accounts! That’s barely enough to live the middle-class life they worked so hard to build through education, and it certainly leaves no room for emergencies or unexpected costs.

There’s an Intense Need for Change

The promise of education is to open graduates to a world of opportunities to better their lives. If they’re $30,000 in debt, it’s challenging to live the life they worked so hard to achieve. In too many cases, we're seeing traditional degrees and the associated crushing debt result in a workforce ill-equipped for the modern workforce. Something needs to change.

An ISA is an interest-free agreement made between a student and their school, whereby the school lends the student tuition money for a percentage of their salary earned upon graduation. At Holberton, the school I co-founded with Sylvain Kalache, students only repay ISAs if they earn a salary over a minimum threshold. A student who receives an ISA is not obligated to work; during periods when s/he is not working and has no income, s/he does not have to make payments on his/her ISA.

ISAs not only give students a more realistic payment option; they also hold schools accountable for training their students for success. According to the Meet Summer report, 39 percent of people in debt reported being unable to achieve their career goals. Clearly, those schools are failing their graduates. With an ISA agreement, the school doesn’t get paid unless the student finds success in the workforce.

Income Share Agreements Make Education Financially Accessible to All

Investors can invest in Holberton students’ education by buying “shares” of Holberton Income Share Agreements (ISAs). We found a way to monetize these ISAs – retaining our commitment to our students (so very important to us) – and still allowing us to invest in even more students.

When a student signs an ISA, we commit to give that student a quality education with real value by giving our students not only the knowledge they need, but the hands on experience and soft skills that will help them to succeed in the workforce. If the education lacks value, and the student can not find a job (in our case, making more than $40,000 a year), the student owes us nothing. So these ISAs have value, but it is a value that takes years to realize (in our case about 3.5 years).

In an attempt to scale our ISA initiative, we have decided to join Edly, an online marketplace that enables accredited investors to do well by doing good, with $2 million in trades of student ISAs. Unlike student loan debt, which can be punitive and unaffordable, ISA investments on the Edly marketplace reward and fuel ongoing student success. We’re pleased with this unique and efficient source of investment in our programs. Holberton’s ISAs enable students to pay for their education without accumulating debt. Participating in Edly will help us expand our program reach to meet student and employer demand for affordable world-class software training and education. It’s critical to us that all parties’ priorities are aligned: Holberton School and investors on Edly all succeed only when students succeed.

As a very early adopter of ISAs in the US, we are often asked by other offline, online and even traditional schools how they can adopt this model. It is important to offer a truly valuable learning experience to the students. If students fail, so does the school. And if students succeed, so do we as a school – and, more broadly, as a society. With this new partnership, we are reshaping the education landscape, accelerating the democratization of financial access to higher education in the United States. We hope that more schools, universities and investors will adopt this new, dramatically more fair approach to tuition for America’s students.

So, while many schools still resort to the traditional tuition model, increasing the amount of student debt, the trend of the Income Share Agreement is catching on. More schools are adopting this method of tuition including Holberton, Purdue University, MakeSchool and the University of Utah, and there is even a bill making its way through the California legislature right now in order to regulate Income Share Agreements, proving that colleges, students and government are all on board for this innovative, debt-free tuition model. It is only a matter of time before all schools adopt this tuition model and the educational system is on the right path again, doing what they set out to do: educate the masses.