Leif’s Triple Impact Design Tool: Aligning Incentives for Success

Jun 24, 2020


Leif was founded with the mission to increase access to quality and affordable education. With over five years of operations, Leif has partnered with over 150 institutions, impacting over 13,000 students, and arranging over $150M in Income Share Agreement financing. We have a unique vantage point for understanding the elements of a successful ISA program. It is more apparent now than ever that outcomes-based education finance is critical to ensuring students obtain the skills required to succeed in today’s rapidly evolving economy.

Our unique experience in the Income Share Agreement space has allowed us to identify the following potential pitfalls:

  • Suboptimal Terms: Selecting optimal ISA terms requires multivariate analysis. While Leif’s platform institutes a hard cap on income percentage, program-specific variables such as field of study and geography should also be considered. Similarly, setting a minimum income threshold that is appropriate for expected outcomes is equally important for program success.
  • Poor Underwriting: While a FICO score is by no means an indicator of academic success, it is paramount to understand a student’s underlying credit profile. Adding additional obligations to an already over levered debt burden is detrimental to a student’s financial health.
  • Mission-aligned Capital Partners: Investors need to be compensated for the idiosyncratic risks associated with a new asset class, so Leif ensures it works with mission-aligned capital partners that share those risks with our partner schools.
  • Unified Program Manager: Program design, compliance/legal framework, customer success, and financing are all inextricably linked and a unified program manager reduces potential conflicts resulting from misalignment of incentives.
  • Program Results: Programs need to deliver a positive ROI [1] to their students, which is the beauty of incentive alignment. Students should ask themselves the following question: if a school is not willing to stand behind its outcomes through an ISA program, is it worth my investment?

The journey of a successful ISA program begins with thoughtful program design. Leif’s Triple Impact Design Tool will help remove the confusion surrounding the creation and launch of Income Share Agreement programs. In today’s uncertain economic environment, it is critical that students seek educational opportunities where schools are incentivized to deliver positive outcomes. Thoughtfully designed, student-friendly Income Share Agreement programs will help students pursue those opportunities. We are excited to launch this tool and make it available for the public.

We leveraged advanced statistical analysis built on top of Leif’s proprietary data to benefit (1) schools hoping to implement ISA programs, (2) mission-aligned capital providers, and most importantly (3) students looking to gain access to quality and affordable education.

  1. Schools: The design tool ensures that schools follow best practices within the existing regulatory and compliance framework. Drawing from 5 years of Leif’s performance data, alongside other targeted and proprietary data sets, we run a series of simulations to identify viable structures with targeted paybacks that meet listed tuition [2].
  2. Capital Partners: To attract scalable capital a well-designed program must achieve market-driven returns. Leif works with mission-aligned capital partners and its financing structure ensures that schools maintain incentives to deliver positive outcomes to their students.
  3. Students: Income Share Agreements enjoy the unique, student-friendly feature that students simply do not pay anything unless they obtain a well-paying job. There is significant value to this implicit form of wage insurance. Leif goes one step further and its design tool ensures that all programs account for affordability and limit the burden on high-earning students [3]. We have found that students simply prefer this inherently student-friendly feature that is not present with traditional student loans.

We invite you to discover what an ISA program could look like at your school using Leif’s Triple Impact Design Tool. We look forward to discussing how ISAs can help increase access to your programs.

Team Leif


Footnotes:

[1] Leif’s design framework gives special emphasis to both the school’s job placement rate and the expected salary to ensure students are offered ISA terms that are aligned with the outcomes and that the school bears the costs of under-delivering to students.

[2] Leif ensures ISA programs are sustainable by taking a probabilistic view on a program’s outcomes and assessing the ISA program’s expected payback. By ensuring the expected payback distribution is in line with listed tuition, schools can be confident that their financial goals will be met as they continue to deliver value to their students.

[3] Leif ensures ISAs are affordable to students in these distinct ways:

(i) By modeling the expected salary and time to placement distributions of students, Leif optimizes for ISA terms that result in reasonable expected implied interest rates; (ii) Setting a minimum income threshold that protects students whose outcomes are at the lower end of the expected income distribution of the field of study; (iii) By ensuring the take-home pay (post ISA payment take-home salary) is above reasonable income thresholds.