Income share agreement start-ups catch students’ fancy

It is still a nascent market but a growing one, which has investors interested

Assume you want to do a course but don’t have enough for the fees. A company comes forward to pay not only the fee but also offers a job placement with decent income — from which they will deduct what they have lent, with a small interest rate.

This is actually happening in India and gaining traction from customers and investors. Termed the Income Share Agreement (ISA) education model, students can defer fee payment for higher education till they get a job. The model has been popular in America and parts of Europe. In India, around half a dozen start-ups are in the segment, focusing mainly on re-skilling for now.

“ISA has emerged as the most exciting innovation to finance a college degree,” says Pratik Agarwal, co-founder of the School of Accelerated Learning (SOAL).

How it works

The contract obliges a student to pay back a portion of future income for a set number of years, rather than take a student loan. These start-ups pay fees for re-skilling freshers and engineering graduates.

The post-college skilling market in India was pegged at $370 million (~26,300 crore) this year and the post-college tech skilling at $180 million, growing at almost 50 per cent annually. Every year, around nine million students graduate from colleges but 85 per cent do not make it to a well paying and white collar job. The data shows half of all BE/BTECH graduates and 60 per cent of MBAS are still considered not employable by reputed tech organisations.

“The ISA model makes quality education accessible. Around 80 per cent of our students are dependent on their families and the family income is less than ~5 lakh (a year),” says Divyam

Goel, co-founder and chief executive at Attainu. They have a little over 500 students enrolled across five batches of software engineering, with specialisation in full-stack web development. The first batch is ready to graduate and 40 per cent of them have pre-placement offers, he claims.

The segment is expected to grow and see investor interest, with financial technology opening up. Fintech entities and non-bank finance companies are increasingly open to collaborating with ISA, is the observation.

Pesto Tech says it assures that if it does not get the student a job paying at least ~15 lakh a year, its training programme was not good enough and the student should not have to pay for it. The company is focusing on training software engineers to break into international tech careers, through full-time remote jobs. In its programme, the student has to share 17 per cent of the salary for three years. Interviewbit operates on a different model. There is a prepaid one, with upfront ~2 lakh payment for a six-month course with job guarantee. And, a postpaid model where the student has to pay 17 per cent of the base salary for two years if he or she gets a job with more than the minimum guarantee on CTC (cost to company). The maximum total payment is ~3 lakh, says the company website.

Nova Semita says the same way investors gain only when their start-ups grow, ISA startups gain only when a student’s career accelerates. “We invest in resources for you and take the risk on ourselves. In return, we get 12 per cent of your income for three years upon you earning above ~5 lakh per annum. In case we fail to get you there, ASAP, you don’t have to pay us anything,” says the company.

How the Investors benefitted

Data by Venture Intelligence shows that since April, SOAL, Pesto, Interviewbit Academy and Masai School have raised a little over $4 million, from Matrix Partners, Sequoia Capital, Astrac Ventutres, India Quotient and others. Angel investors include Shailesh Rao, ex-mananging director at Google India; Nikhil Rungta, former head of Intuit India; Anil Gelra, founder of Snapmint and Manish

Kumar, founder of Kredx and Letsventure.

Agarwal of SOAL says though the ISA model is nascent in India, it has huge potential. There is a young population which wants to keep upgrading by studying but faces a lack of adequate funds to do so. Says Nikhil Rungta: “Over 60 per cent of the engineering students who pass out every year are either unemployed or stuck in unrelated jobs. If we go beyond engineers, this problem multiplies 10 times.”

Challenges include ensuring repayment of the fee, considering a legal dispute on this could derail the business. Getting more numbers placed in good jobs also becomes a responsibility of the start-up, it being a requisite to ensure proper repayment. Trust is very important in this business, while quality is essential to keep it a success, say Agarwal and Goel.

Attainu says it has a rigorous assessment process and selects only 1.4 per cent of total applicants for its 30 -week course. SOAL has enrolled a tenth of its 1,100 applications to date.

“It isn’t an unlimited fee that the student needs to pay. People cap it at varying amounts, of ~4-7 lakh,” said Agarwal. These companies follow different revenue models; some have been experimenting with more than one. “ISA allows institutes to admit meritorious students who otherwise might not be able to afford the course fee. This loan structure involves institutes and promises good placements… this adds another layer of security,” he adds.