Income-Based Repayment Models: The Good, the Bad, and the Future
“Income-based repayment models have been implemented, tested, repealed, and reimagined.”
The Rise and Fall of ISAs
Between shrinking aid budgets and growing loan burdens, students today are often forced to make impossible tradeoffs. Income-based repayment models offer a middle path that adapts to a student’s future income. But while the idea sounds great in theory, past attempts have shown just how easy it is to get this model wrong.
Milton Friedman theorized the income-share agreement (ISA) in his 1955 essay. Since then, ISAs and other income-based repayment models have been implemented, tested, repealed, and reimagined. Purdue University led the charge in 2016 with its Back-a-Boiler program, which covered part of a student’s education expenses in exchange for a percentage of their income for ten years after graduation. Other institutions, including Clarkson University and the University of Utah, followed suit by partnering with third-party servicers like Vemo Education or Stride Funding.
Initial traction was promising, but in 2022, controversy erupted. The Consumer Financial Protection Bureau (CFPB) ruled that ISAs were legally private student loans, even though many had been marketed as “non-loans.” Students reported confusion over the terms, especially around the percentage of income they were expected to repay. Legal pressure mounted; the Department of Education brought lawsuits against private servicers like Vemo Education. Purdue shut down its program and Vemo soon followed, closing its doors after legal battles with another university partner. Just like that, the for-profit ISA model came to a halt.
Meanwhile, a new generation of income-based repayment programs emerged in the nonprofit space. Donor-backed funds like Better Future Forward and the Flywheel Fund for Career Choice began offering ISA programs around 2018. These efforts had a different goal, mission over margin. With no fiduciary duty to investors, these funds could offer more student-friendly terms, including lower repayment percentages and strict repayment caps. But even with stronger protections, they faced challenges with scale and sustainability.
How Scholar Basis Is Different
Even though ISAs had the potential to do good, its heyday has passed and we are leaving it behind. It provided an invaluable safety net, but it had many drawbacks: unclear terms, compliance issues, and student dissatisfaction.
The idea for us was simple. We wanted to hold onto that safety net of an income-based repayment model but do it right. No interest, no early repayment penalties, and students never pay back more than what they borrowed.
“Basis Zero was built to solve that pain not by offering a silver bullet, but by rewriting the rules of what financial aid can look like.”
We’ve built all of this into Basis Zero: a financial aid augmentation that helps increase enrollment, support student success, and bring more revenue back to the institution. Finally, we made one key choice that separates us from past ISA efforts: our profitability is not tied to student repayments, allowing us to align with students’ and schools’ best interests.
Why Students Say Yes
Then comes the next logical question: will students actually choose this? In our population-wide survey, more than 50 percent preferred a larger aid package with income-based repayment over a smaller grant. For many families, especially those in the middle-income bracket, the aid gap is filled not by choice but by necessity, often through private loans with high interest and rigid terms. Basis Zero offers a more flexible and emotionally manageable option: repay only when you’re earning and only with a fair amount.
We designed this model with students like us in mind. As graduates of one of America’s most expensive universities, we know how overwhelming financing college can be. Basis Zero was built to solve that pain not by offering a silver bullet, but by rewriting the rules of what financial aid can look like.
If you want to dig deeper, check out our guidebook or get in touch. We’d love to share more.