Promising New Insights From Purdue University’s ISA Program

The Purdue University income share agreement (ISA) program burst onto the higher education scene in 2016 with rave reviews. Mitch Daniels, then-president of the university and a former Indiana governor, garnered a lot of attention for the innovative program in the press and from Congress. The Back a Boiler – ISA Fund, as it was called, aimed to shift the risk of higher education “from the student to the investor.” Individuals were to pay their education costs based on a percentage of their income once employed in a well-paying job, rather than making fixed monthly payments

But a backlash quickly emerged, with critics speculating that students would pay more under the ISA than a comparable loan. They also questioned whether ISAs would exacerbate disparities in education and earning outcomes and disadvantage non-STEM students, who, on average, earn less than STEM majors and may face less generous repayment terms. Six years later, when the program stopped issuing new contracts, many in higher education assumed the pause meant the program was a failure.

We believe new research should change that perception. Using the program’s internal data on student payments, Purdue University economist Kevin Mumford found the program appears to be, on average, more affordable and accessible than federal Parent PLUS loans, and without appearing to create any discriminatory or disparate impact. 

JFF supports this effort to expand the evidence base for ISAs, and we hope that rigorous research on innovative models for financing higher education continues. Analyzing the results is key to understanding the potential that innovative finance has to expand access to postsecondary education and whether there may be unintended consequences.

The Purdue Model

The goal of the Back a Boiler ISA program (named for Purdue’s sports teams, the “Boilermakers”) was to help students pay for their education without taking on unaffordable student debt. It financed college for students who otherwise would have borrowed the money from private fixed-payment loans or whose families would have taken out federal Parent PLUS loans. It was also intended to be more accessible than Parent PLUS loans by not requiring applicants to undergo a formal credit check or have willing parental co-signers with good credit. Here’s how it worked:

(1) Students only made a monthly payment if they earned at least a certain income, (2) Students earning at or above that income level paid a pre-determined percentage of their income each month rather than a fixed dollar amount, and (3) Their ISA obligation expired after a set period, regardless of how much they had repaid. Income thresholds and income share percentages were determined by academic major. The university sorted majors into eight “ISA contract groups” based on expected earnings in an attempt to avoid a situation where students in higher-earning majors ended up subsidizing students in lower-earning majors.

Purdue stopped issuing new ISA contracts in the fall of 2022, when its servicer Vemo exited the market, though existing contracts are still being serviced.

Back a Boiler is by far the largest ISA program ever operated in the higher education context, yet there have been few attempts to rigorously research this program. As a consequence, we know little about how the program impacted students. But this new research, coupled with an earlier study by Mumford, in 2022, have begun to shed an important light on how the program has actually performed.

These are the key findings:

• Roughly two-thirds (58% – 74%) of Back a Boiler students have paid less in the ISA than they would have paid in a comparable Parent PLUS loan, as of 2024. (The research found a range in the percentages of students who have paid less because the study looked at two different scenarios. In one scenario, researchers assumed that students made payments as scheduled; in the other, researchers assumed that students received deferments for some of their payments.) The share of these “Below PLUS” students (those who have paid less in the ISA than they would have in a Parent PLUS loan) is expected to moderately decrease as they progress in their careers and their incomes rise, thus increasing their monthly payments.
• Lower-earning students have paid less in the ISA than they would have in a PLUS loan. “Below PLUS” students—who have saved between $2,100 and $2,500 compared to the PLUS scenarios—have an average starting salary of about $55,000, which is about $8,000 to $12,000 less than the salaries of the “Above PLUS” students (those who have repaid more in the ISA than they would have in a Parent PLUS loan). By shifting education costs away from low-earning students and toward higher-earning students, the Back a Boiler program better matches payments with ability to pay, thus improving affordability in the aggregate.
• High-performing students are more likely to repay more in the ISA than in the hypothetical PLUS loan. There is a strong correlation between higher GPAs—and higher SAT scores—and repaying more in the ISA. The “Above PLUS” students have a higher average cumulative GPA of 3.15 – 3.18, compared to an average 3.02 – 3.04 GPA for “Below PLUS” students. These students, on average, also had higher SAT scores by 10-14 points. This finding may point to students with higher GPAs and SAT scores having better labor market outcomes (e.g., higher starting salaries) than lower-performing students, leading to higher repayment in the ISA.
• The program does not appear to financially disadvantage Black and Hispanic students, as some critics had theorized. In fact, “Below PLUS” students are more likely to be Hispanic than “Above PLUS” students, and Black students are equally represented across both groups.
• The program improves completion rates, especially for Black and Hispanic students. Drawing from Mumford’s 2022 research, ISA participants were 3 percentage points more likely to graduate than students in a quasi-control group. The impact was even stronger for Black and Hispanic students. Black students in the ISA program had a 6 percentage point higher completion rate, and Hispanic students had a nearly 17 percentage point higher completion rate.
• Purdue appears to have done a good job setting its contract terms. A distinctive feature of the Back a Boiler ISA is that it set unique contract terms (income share percentage and earnings threshold) for particular groups to account for differences in expected employment and earnings outcomes. For example, chemical engineering students had income share rates between 2.57% and 3.93%, while sociology students had rates between 4.52% and 5.42%. Critics worried that this would lead to students in higher-paying majors paying less for their education than those in lower-paying majors, creating disparate impacts for students of color and students from low-income backgrounds who are underrepresented in the highest-earning majors. However, the new research shows that the amount students paid back was fairly consistent across majors, meaning that the ISA terms were designed well. Higher earnings offset favorable repayment terms, and vice versa, with students in majors with higher average salaries actually making only slightly higher payments.

Purdue’s Back a Boiler program has received both fanfare and criticism. This research suggests that the critics’ concerns have so far not come to pass and that the program has been moderately successful in serving students with a more affordable and accessible financial alternative to Parent PLUS loans.

At JFF, we believe that income share agreements and other forms of innovative finance, if designed responsibly, have the potential to transform our postsecondary education and training systems to make them more affordable and broadly accessible. Rigorous research is necessary to build the evidence for what works and what doesn’t, and we are glad to see this research join the evidence base for innovative finance models.

To learn more about innovative finance and its transformative potential, read our landscape analysis.