- Two consumer advocacy groups filed a complaint with the Federal Trade Commission against income-share company Vemo Education, alleging it understates the repayment costs of its product and overstates that of alternatives in a decision-making tool it offers.
- Vemo works with colleges and other credential providers to offer students a form of education financing called an income-share agreement (ISA). Co-founder Jeff Weinstein defended the tool to Education Dive, saying that the way it presents cost data better represents students' experiences.
- While ISAs have gained attention as an alternative to some types of student loans, critics say they lack key consumer protections.
ISAs have emerged as a way to bridge the gap between the rising cost of college attendance and the share of that amount covered by federal loans, scholarships and grants. In an ISA, students get upfront financing that they agree to repay as a percentage of their income for a set period upon graduation. ISA companies pitch them as lower-risk, interest-free alternatives to Parent PLUS loans and private student debt.
Vemo isn't the only company offering ISAs, but it is perhaps the most prominent. It works with around 80 colleges and training providers.
While alternative education providers offer students the option of using ISAs to cover the full cost of attendance, colleges tend to take a more targeted approach. That has included limiting them to students near graduation or who aren't eligible for federal financial aid.
Critics of ISAs say the model is debt by another name and lets colleges evade the issue of lowering costs. While ISA contracts typically say a student doesn't have to start repayment until they earn above a certain amount, they can include requirements that extend the payment period to account for the months students didn't qualify.
Debate over the merits of ISAs comes as the U.S. Department of Education is reportedly considering using the financing model. Federal legislation that would regulate ISAs, specifically, has failed to gain traction.
In their complaint, the nonprofit Student Borrower Protection Center and the National Consumer Law Center focus on a tool the company offers its partner colleges to help students compare ISAs to other financing options, such as Parent PLUS and private loans. In this case, they look specifically at those on the websites of Purdue University and the University of Utah.
How much a student is expected to repay has been a sticking point for ISAs. Repayment rates tend to range from 1% to 8% of income and start when salaries reach $20,000 to $40,000, with a cap on how much a student is expected to pay overall, according to examples observed by Education Dive. Earning just above the threshold can leave students with untenable payments, consumer advocates say, while some contracts have penalties for early repayment.
The groups allege that Vemo's tool uses artificially low starting salaries in its calculations. That leads to lower payment projections, they wrote, "misrepresenting (the ISA's) expected costs and in many cases falsely presenting it as the least-expensive financing option."
Other issues include how the company calculates income growth and the cost of borrowing for Parent PLUS loans. The groups are asking the FTC to require that Vemo take down the tool until it has been independently audited for accuracy and let students at some schools using the tool rescind or revise their contracts.
Weinstein, who is also Vemo's vice president of strategic and data analytics, views the complaint as "a description of multiple ways of doing things and how (the groups) would have chosen something else." He said his team designed the tool to account for a wide range of student experiences and that the data reflects those.
The comparison tools are meant to be used by students working with financial aid officers or a parent to decide whether to take on an ISA, he said. The data that feeds the tools is based on what information the college has available and is supplemented from state and federal sources, he added, noting that it is updated regularly. Not all schools make their tool publicly available.
A Purdue spokesperson said in an email that the university couldn't comment on the specifics of the complaint but noted they will "consider the advice of any good faith experts who have ideas or advice to improve those resources." The University of Utah declined to comment.
The FTC said it has received the complaint but was unable to comment.