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The emergence and growth of coding bootcamps throughout Latin America and the Caribbean (LAC) over the last decade has disrupted the traditional higher education sector by presenting a flexible and innovative training model to respond to the needs of our increasingly digital economies. Coding bootcamps represent an educational alternative to unleash the potential of LAC's human capital and can also play a central role in promoting inclusion. There is a market tendency to finance these technology courses with Income Share Agreements (ISAs) that allow participants to pay for tuition when they get a job post-graduation. The use of ISAs can increase access to education for some of the region's most economically vulnerable young men and women and provide them with the necessary skills to improve their job opportunities in the digital economy. ISAs can also bring more transparency and accountability to the bootcamp industry, an industry barely ten years old, by measuring and encouraging reporting of graduate employment rates, further driving disruption towards pay-for-impact financing schemes.

1. What is an ISA?

Known in LAC as "Acuerdos de Reparto de Ingresos" or "Acuerdos de Ingresos Compartidos," an Income Share Agreement (ISA) is a financial structure in which an individual or organization provides training or education to a recipient who, in return, agrees to return a percentage of their income over a fixed number of years.

2. How are ISAs different from traditional loans?

When borrowing, the person must repay the loan's principal balance and interest, while with ISAs, the repayment obligation depends entirely on the person's future income. In the case of ISAs as a financing tool for post-secondary education, the student pays back a portion of their income after graduation.  

3. What is the added benefit of using an ISA?

Supporters assert that ISAs can help improve educational outcomes by assisting students from diverse socioeconomic backgrounds to obtain financing. Further, they point out that ISAs consider a student's future employment and economic prospects. Since ISAs are designed with "minimum income" thresholds, students don't have to start "sharing their income" (i.e., payments) if they don't earn above a threshold. This means that if students don't get a well-paid job quickly, they aren't burdened with financial obligations; in other words, they have downside protection. This characteristic stands out when considering the LAC labor market, where youth unemployment in 2020 was estimated at 18% —double the general average—and the youth informality rate in 2016 was estimated at 62.4% (10% more than that of working adults), which implies that the majority of available jobs are precarious, low-income and without protections or rights for workers. 

4. How could ISAs help serve vulnerable populations?

The economic cost of higher education is often highlighted as one of the causes of the high dropout rates of students in Latin American countries. This cost—which may include an upfront payment, full reimbursement of principal and interest expenses (regardless of employment outcomes), and/or denial of loans based on credit risk analysis — poses a significant barrier to accessing that level of education for vulnerable communities. However, thanks to the flexibility of repayment terms, which are based on earnings realized after graduation, ISAs have the potential to address inequalities in access to higher education, not only by lowering financial barriers to entry to education for vulnerable populations but also by reducing economically motivated dropouts. Thus, this innovative investment model has the potential to reach and serve those who would not otherwise have access to finance to further their education.

5. How could ISAs positively affect educational offerings and employment prospects?

By investing in students through ISAs, higher education institutions are betting on the future earnings of their graduates, and reimbursements will depend on those results; therefore, institutions would be incentivized to ensure that students get quality, well-paying jobs upon graduation. This could translate into a greater effort in career services, job orientation and placement, and employment plans for graduates. Furthermore, it could lead to a better alignment of students' interests with education providers and encourage these institutions to be more responsive to labor market demands and adapt their course offerings accordingly.

6. What are the main components of ISAs?

Although the terms and conditions vary between contracts and must be adapted to them, ISAs have many common essential components, including:

• Percentage of salary to be paid upon graduation
• Grace period during which the student is not required to make payments
• Minimum income to be obtained before being obligated to pay
• Maximum payment limit
• Number of required payments to be made after graduation
• Payment window (period of time) to collect the required payments
• Qualified positions that waive or require a share of your salary
• Eligibility criteria to better target programs
• Withdrawal clauses that allow abandoning the course and minimizing the ISA obligation
• Deferment clauses that allow requesting a delay of the ISA obligations

7. What are the challenges and risks associated with ISAs?

ISAs remain unregulated, making it difficult to collect payments and access investors willing to provide the necessary capital to set up an ISA program. Furthermore, the high levels of informal employment in LAC, especially for youth, call for finding innovative ways to monitor, verify, and enforce contractual agreements. At the macro level, since ISA returns depend on the employment outcomes of students upon graduation, the ISA business model is highly dependent on the economic situation of the countries and the region in general. The structure of ISAs is subject to adverse selection problems (i.e., only students with certain characteristics self-select into ISAs) and moral hazard (i.e., downward protection of ISAs may cause students to put less effort into their studies or in job search and accept lower paid jobs).

Given the significant inequality in the access of low-income populations to higher education (only the 10% of the lowest income percentile has access compared to the 70% of the highest income percentile), ISAs could represent an innovative financing mechanism to enable higher education in the most vulnerable populations in LAC. They have benefits such as downside protections, increased access to education, reduced dropout rates, and enhanced skills matching. In addition, programming courses provide technical skills in high demand, and if more women were attracted to them, it could contribute to reducing the digital gender skills gap.

However, ISAs are a relatively new product in the region, and experience comes mainly from their use in the United States, so much remains to be learned from the introduction of ISAs in LAC. With the support of IDB Lab, the innovation laboratory of the IDB Group, DEV.F —an innovative solution to educational inclusion with coding courses reaching students in several LAC countries—is piloting the financing of coding courses for students through ISAs. In turn, IDB Lab is working with Quotanda—an entity specializing in ISA programs with an innovative ISA-as-a-Service technology to manage the ISA portfolio on behalf of different bootcamps and/or investors—to support the first inclusive ISA program to incentivize and expand access to educational opportunities in technology for women and low-income people.

If you want to know more about ISA, coding bootcamps, and EdTechs in general, we invite you to attend the Global Impact Summit that will be held next September 28-29 in Mexico City with HolonIQ and IDB Lab. This Summit will focus on the future of education and workers, climate and sustainability, and health innovation.