You study without paying and when you work you give part of your salary: the financing that extends through the bootcamps in Spain
This is known as an income-sharing arrangement (ISA). income share agreement) and it is a method of financing private studies with a long history in the United States, but in Spain it is relatively new. With it, the student has the possibility of taking the course they want even if they do not have the necessary money or guarantees to request a credit to use: all you have to do is agree to give a fixed percentage of your future salary to the company that paid you for the course.
The system, which in Spain offers the financial startup StudentFinance Since 2019, it is beginning to spread in our country, especially in technology studies schools and bootcamps. This emerging company establishes agreements with the academies to include their shared income agreement among the payment options they give to students. For the moment, in this way they have associated with 28 Spanish private educational centers, according to data provided by the company itself to Xataka.
One of those schools is Ironhack. Victoria Fernández, admissions manager of this academy, explains that they decided to offer this type of agreement because “It is a good option for someone who, without something like that, could not even consider taking the course. With this system they don’t have to have savings, and it gives them the peace of mind that, until they get a minimum income, they don’t pay anything “.
Other technological academies, on the other hand, do not see clearly that it will work in our country. “In Spain there is no tradition and there may be some legal uncertainty. In addition, The starting salaries here are low, in the US and the UK salaries better allow such agreements“, explains Sebastián Barajas, founder of Ubiqum Code Academy.
The dangers of ISA
The insecurity referred to by Barajas is fundamentally related to the interest on these loans. The Spanish Consumer Credit Contract Law specifies, among other things, that financial institutions are obliged to provide the applied interest rate and the equivalent annual rate in the contract. However, StudentFinance ensures that its financial products are interest-free to begin with, and then He talks about a figure he calls ‘cap’, which is where they get benefits from and can add up to 50% of cost to the initial value of the course.
According to the startup, the cap It is a variable value that depends on the income that the student achieves during the period in which he has to pay the debt, usually between 36 and 48 months after getting the job. In this way, they say, the more their clients earn, the more they pay, up to a limit set in the contract, while if the salary is low, the percentage paid is lower.
Interest with a variable rate, after all, but with another name that can mislead the unwary and that in countries where this type of agreement has a greater tradition, such as the United States, has already caused some problems. In fact, according to Forbes magazine In its US edition, the main risk of the ISAs is precisely that the student may end up paying a much higher price than the course initially had or the one they would have faced with a traditional loan.
“Going into debt to study a course is a bad idea per se, unless you are very clear that the course you are going to do you like and you are going to finish it safely, that the associated financial costs are acceptable once you enter the labor market and that this debt will not weigh down your own future economic development, conditioning where you are going to live and develop your life. If you do not meet these premises, it is not recommended at all, “says Remo Domingo, finance expert and director of iasesoria.com.
From Ironhack, however, they explain that they have chosen to offer this type of agreement precisely because it gives their students more possibilities with less risk. “We like this model because we think that it adapts to the reality of our students at all times. They pay when they have work and can do it, which is very important especially in a context like the current one. We would never accept a model that indebted our students“, explains Tiago Santos, general manager of the school in Barcelona.
For all this, the experts consulted by Xataka emphasize that, opting for a shared income agreement, is very important to read the entire contract in detail, so that the student does not encounter unpleasant surprises in the future.
With the income-sharing agreement, the lending company does not ask for collateral or financial history. On the one hand, he conducts a personal interview with the potential student to find out their skills and objectives. For other, investigates the professions that demand the most qualified employees in the current labor market, or those that are expected to do so in the coming years, and only grants credits to study those disciplines. Thus, if the student convinces the interviewer and opts for a course with good job opportunities, he grants him the loan.
“Anyone who is over 18 years old, can work in Spain and is motivated to work can choose our financing model“, asegura Mariano Kostelec, CEO of StudentFinance.
When the financial company decides to grant the loan, the student signs a binding contract by which agrees to pay installments for a specified period of time, generally between 32 and 48 months, after finishing the course and once I get a job.
According to the information shared by StudentFinance on its website, fees are not established for a specific monetary amount, but for a fixed percentage of the salary that the student gets in his future job. In one of the schools that the startup advertise on your page as a member, that percentage is 10%. Therefore, if the salary that the student gets varies in the time in which he is paying the credit, the amount that he must disburse also changes.
StudentFinance ensures that they establish a limit amount for monthly installments, in such a way that if the student gets a job with a very high remuneration, you will not pay more than what is established per month. Similarly, if the student gets a job whose annual salary does not exceed a pre-established threshold, for example, 20,000 euros net per year, the finance company postpones the collection of the fee until they get a better remuneration.
The payment of these fees can not only be postponed due to low pay, it can also be done in the event of an interruption in income due to unemployment or a reduction in income due to sick leave. To qualify for this postponement, the student will have to notify StudentFinance of the reduction in their income and justify it with some document.
Regarding the expiration period, students have ten years to complete the payment of the course and StudentFinance ensures that in the event that the student does not complete the payment in that time, due to not having sufficient income with which to deal with it, would be exempt from debt after a decade has elapsed from the signing of the contract.
What if you don’t finish the course?
If all goes well, the student finishes the course, he has liked the profession he has learned and finds a good job, the only drawbacks of this system are incur variable amount debt for three or four years and its possible cost overruns with respect to traditional credits.
However, if the student is not liking the course and he decides not to finish it, the problems grow: the debt remains even though it has not obtained the labor means to face it. From StudentFinance they point out that, depending on the height of the course at which the student decides to withdraw, the amount owed may or may not be prorated.
“There is a dropout policy within the contract that indicates that if the student has attended less than 40% of the program, the debt is prorated, and if attendance is greater than 40%, the candidate has to pay the full debt. Payments, in either of the two situations, are made in the same way, the fixed percentage of your gross monthly income as long as it exceeds the established minimum income “, explains Kostelec.
And the same happens if the student finishes the course, does not like the profession he has just started to practice and decides to try another.
Technology and digital jobs
In Spain, the only company that, for the moment, has specialized in this type of agreement is StudentFinance. The startup points out that only students from schools with which they have previously reached agreements, such as Ironhack, Hack a boss, Neoland or Uxer School, are eligible for this funding, because academies also have to undergo feasibility studies: they must convince them that their courses have job opportunities. Therefore, they do not grant credits to students from other centers.
According to data from the startup, currently have about 600 shared income agreements in force in our country. The amount of these credits, they explain, is very diverse, and they cover from courses that have a value of 650 euros to masters that cost 14,000 euros.
Among the courses for which they offer financing are studies of software engineering, web development, data science, UX / UI design, digital advertising, cybersecurity o blockchain.