Since arriving from Mexico at age 18 in 2002, Abraham Cachu has dabbled in technology, starting with music software. A self-taught programmer, he found on-and-off work building websites, managing social media and handling e-commerce for dental offices, toy shops and other clients.

Still, these gigs weren’t enough to land a full-time job. He didn’t have a bachelor’s degree, dropping out of UC San Diego after one year due to financial difficulties. In 2018, Cachu took a job at an Amazon distribution center about 30 miles from his home in Escondido, Calif., sorting and scanning packages. He was working for a tech company, but this was no tech job.

“I’ve been looking for opportunities to get a certificate or degree—something to get myself a foot in the door for a job in tech,” says Cachu, now 37. “The thing that I’ve been missing in my career as a web developer is having more contact with professionals.”

Last March, he heard about a new program that promised both: a certificate in business intelligence offered by UC San Diego Extension, and career-prep and job placement services provided by a local nonprofit.

In July, Cachu started taking online classes during the day, learning skills and programming languages like R, which is often used in data analysis. In the evenings, he continued working at the Amazon warehouse. Toward the end of the nine-month program, Cachu began preparing for job interviews and networking with local employers. He brushed up his resume and LinkedIn profile.

On March 16, 2020, he completed the last of his five classes to earn his certificate in business intelligence, eager at the prospects of a new career.

A couple days later, California Governor Gavin Newsom issued a statewide stay-at-home order as the COVID-19 outbreak began, effectively bringing the economy to a standstill.

“The timing couldn’t have been worse,” says Cachu. Employers stopped hiring; job postings disappeared. Disappointment was an understatement. “I was hoping, at least, that I could get an internship or opportunity to shadow someone professionally,” he adds.

That hasn’t happened. Today, he’s still working at the Amazon distribution center.

Despite the dashed plans, Cachu says he is thankful for one thing: He hasn’t had to pay anything yet for the program.

A New Workforce Deal

Cachu is part of a new workforce training program organized by UC San Diego Extension and the San Diego Workforce Partnership (SDWP), a nonprofit run in partnership with the City and County of San Diego that provides career development and training programs for adults and job placement services to fill hiring needs of local employers.

Unique to this program is a financial model known as an income-share agreement (ISA), where students pay no money upfront. Instead, they agree to give back a percentage of their future monthly salary for a set period of time after they graduate and get a job that pays more than $40,000 a year.

If students don’t get a job that meets that income threshold, the monthly payments are deferred. So far, that has been the case for Cachu and many of his peers in the program’s inaugural class, which began last summer with high hopes but ended as one of the worst economic and health crises was unfolding. In all, 22 of the 29 graduates from the first cohort have been unable to find any work, or have only secured internships that pay less than $40,000.

Because graduates don’t pay anything back until they find a job, SDWP is essentially fronting the cost of providing the education program. For students like Cachu, this is one of the biggest selling points of ISAs: Students don’t pay until they’re getting paid. “It’s like they’re taking a risk on us,” he says.

SDWP officials say that this is an important student protection that ISAs offer—especially during a pandemic that has contracted the job market.

“Our program is bearing the risk of the COVID-19 black swan event that no one could predict,” says Andy Hall, chief impact officer of SDWP. “Our students who aren’t making over $40,000 aren’t paying anything,” he adds.

Financing a Renewable Fund

The concept of ISAs dates back to 1955, when the idea was proposed in a paper by Nobel Prize-winning economist Milton Friedman. In recent years, ISAs have grown in popularity, offered by a growing number of non-traditional vocational schools like coding bootcamps and four-year colleges like Purdue University and the University of Utah.

SDWP is the first public workforce development board to jump onboard. Hall first read about ISAs in 2018, and he was intrigued about their potential as an additional form of financial support for people who have exhausted or don’t qualify for scholarships, grants and federally subsidized loans for education programs. Many of the adults whom SDWP serves don’t have a college degree or job; some are refugees or recent immigrants. Homelessness, incarceration and food stamps are not uncommon experiences.

Each year, says Hall, about 2,500 people express interest in getting training and credentials to advance their careers. Yet the public funding that SDWP receives can only support about 500 to attend its programs. More concerning, federal funding for workforce training programs has been declining over the years.

“We are not just going to be at the mercy of what the congressional budgeting process is,” says Hall. “We have a community need, and we need to figure out a way to meet that need.

The idea attracted philanthropists who were interested in this as an experiment. In February 2019, SDWP received a $1.2 million grant from Strada Education Network, an education nonprofit. That amount was matched by The James Irvine Foundation. Google.org, the philanthropic arm of the search giant, donated $450,000.

“The San Diego workforce team is using real-time labor market data to help inform the educational offerings they’re offering, and connecting them to very underserved populations through an ISA,” says Courtney McBeth, a senior vice president at Strada Education Network. (Prior to this role, she helped start up the ISA fund at the University of Utah.)

Strada’s support is “a use case of using philanthropic capital to catalyze a new program, test and learn from it, and see if it can be replicated elsewhere,” she adds.

In total, the Workforce ISA Fund raised $3.3 million by summer 2019. All of the capital is philanthropic, and the supporters do not expect to make a financial return. That is important, notes Hall, because “there is no profit motive” that might incentivize the program to be selective and only choose students who are most likely to succeed. (That is a common critique of other programs whose ISA funds are supported by private investors seeking to make financial returns.)

SDWP prices most of its Workforce ISA programs at $6,500, which includes the cost of the UCSD Extension classes, a dedicated program manager from UCSD who works with the Workforce ISA students, and the career development services that SDWP offers. From the $3.3 million fund, the group could award ISAs to about 500 students.

Insofar as any financial goals go, the primary objective for the program is to be self-sustaining and “regenerating,” says Hall. When graduates make repayments on their ISAs, all the money goes back into the Workforce ISA Fund. The amount they pay, and how many payments they must make, varies depending on the program.

Students who sign up for an ISA complete their repayment obligation if any one of these three conditions are met:

• they have made the required number of monthly payments (36 to 60);
• the payment window after their graduation has passed (5 to 7 years);
• they have paid the maximum of $11,700.

Most graduates who land and keep a job that pays above $40,000 will end up paying back more than the cost of the program. A graduate of Java Programming, for example, would end up paying back about $7,200—assuming that the person’s salary stays at $40,000 throughout the 36 required monthly payments. (They will pay more if they get raises.)

At most, graduates will repay 1.8 times the cost of their program. These calculations assume a risk that 20 percent of students who start may not finish and thus not make any payments at all, according to Hall. “We modeled this knowing that sometimes unexpected life events happen and derail plans,” says Hall.

As part of the application process, prospective students take an assessment created by the UCSD Extension program manager to see if the chosen program is a fit for their career goals. Afterward, SDWP officials conduct several interviews to introduce and review the terms of the ISA contract (sample), and walk through different repayment scenarios. They also explore whether an applicant may have access to other sources of funding to pay for the program.

In some cases, an ISA may not be the best financial option for an applicant, says Alistair Penny, the ISA manager at SDWP. Currently, about one-third of applicants who apply for the Workforce ISA program end up signing on.

Workforce, Interrupted

SDWP officials initially hoped that by 2025, repayments from graduates will be enough to cover the cost of offering ISAs to future students.

So far, that timeline seems optimistic. It’s been a rocky start for the first program; of the 48 students who started, just 29, or about 60 percent, have graduated so far. Three of the 19 who did not finish deferred their studies; the rest dropped out. Penny says that health-related and personal issues have been the main factors in people dropping out.

Of the 29 graduates, 22 are not making any repayments. This includes Cachu, who hasn’t been able to find work, and others who landed internships that don’t pay enough to meet the $40,000 income threshold for repayments.

Among those in the latter group is Claire Gregowicz, a 40-year-old mother with four boys (ranging from 5 to 21 years old) and no college degree. She has been doing video production work, and completed the digital marketing program to help promote a film she recently shot and produced.

As was the case with Cachu, the pandemic upended her job prospects. “COVID-19 definitely took some momentum out of the program,” says Gregowicz. “Things were on pause for a while. Then it was like, ‘Is anybody actually going to be hiring right now?’”

According to the most recent quarterly report issued by SDWP, job openings fell by one-third between the first and second quarter of 2020. (“There were maybe like five postings in April,” Penny recalls.) Nearly one-third of job applications submitted by graduates between April and June were rejected due to hiring freezes. Another 26 percent of applications never got a response.

“Our numbers are not where we would want them to be,” acknowledges Hall. “The renewable aspect of the renewable learning fund depends on us innovating in this space and finding new opportunities for our students—and leveraging some of our other programming to help them with paid internships and other things that can bridge the gap to a job, no matter what the external environment is.”

In response, SDWP expanded its career services. It developed a five-step job readiness program and held virtual career workshops that otherwise would have been held in person. It shared job openings and other updates in weekly newsletters and via Slack. And through TechHire, a federal workforce program launched by the Obama Administration to help adults find tech jobs in their communities, SDWP has helped several graduates find some kind of work, even if they were not full-time jobs.

That’s how Gregowicz found her internship at Coin Up, a nonprofit building a mobile donation app. She applied and started in August. While the paycheck does not meet the minimum to make ISA repayments, Gregowicz hopes it can turn into a permanent position.

From left: Claire Gregowicz, Abraham Cahu and Najie Wei, graduates from the first class of the San Diego Workforce Partnership Workforce ISA Fund program.

One of the few graduates earning enough to make repayments is Najie Wei, who, despite having a bachelor’s degree, still found it difficult initially to get a job. Upon finishing the program in March, she landed a job offer from a real estate company that was rescinded after the statewide lockdown. The same thing happened shortly after with a television marketing firm—and then again with a retail company.

“They all fell apart because of COVID. They just kept apologizing and telling me to wait,” says Wei. “There’d be radio silence for several months. I cried many times, but I kept on looking.”

Eventually, in July, she got an offer from MedImpact Healthcare Systems as a configurations specialist. Wei says the job duties do not fully make use of the data analysis skills she learned, but she’s working to move into the company’s business intelligence department. Wei did not disclose her exact annual salary but said it is between $40,000 to $50,000.

Currently, 11 students are making repayments. Seven are from the first cohort; the rest are in the second cohort who have already found a job before finishing the program. Of the 11, two are earning above $70,000; the rest are earning between $40,000 and $70,000.

So far SDWP has received $4,962 in ISA repayments. “If things continue on the trajectory they are now, it will certainly take longer” than 2025 before the fund is self-sustaining, says Brooke Valle, chief strategy and innovation officer of SDWP. But she says it’s still too early to tell; depending on how job openings pick back up, the fund could get back on track.

Enrollment in the Workforce ISA Fund has fallen short of target as well. “Our original goal for 2020 was that we were going to serve 200 students,” says Penny. This year, 95 have signed up. He believes the uncertainty around the labor market, and the pandemic’s general impact on personal livelihoods, has discouraged more from applying.

To date, 181 students have signed up for the Workforce ISA program, which will soon welcome its third cohort. Of this group, according to SDWP:

• 17 are veterans
• 55 only hold a high-school diploma
• 87 are female
• 130 are people of color
• 104 do not hold a four-year degree
• 118 are first-generation college students

Valle hesitates to draw conclusions about the financial viability of the program based on one graduating class amid a global pandemic and a few months’ worth of repayments. “We’re still very early on, so it’s very nascent in that respect,” she says.

Like her colleagues, she is optimistic that job prospects will rebound. In San Diego county, the labor market appears to be picking back up. In September, the unemployment rate was 9 percent, down from a peak of 15 percent in May.

Will Others Come Onboard?

San Diego may be the first workforce development agency in the country to offer ISAs to finance its training and job placement programs. But it will likely get company. Across the country, there are about 550 workforce development boards, and many are watching SDWP’s experiment closely—especially as funding for these programs decline.

According to the National Skills Coalition, a non-profit advocate for workforce training programs, public dollars for workforce development programs, when adjusted for inflation, have been dipping since the turn of the century.

Source: National Skills Coalition

“ISAs are a response to the fact that we don’t put enough public dollars to support our public workforce,” says Katie Spiker, director of government affairs at the National Skills Coalition.

SDWP is currently working with the Colorado Workforce Development Council, and its peers in other cities including Philadelphia, to undertake feasibility studies to explore starting ISA funds in their communities.

“Many workforce boards are saying, ‘I have more people laid off than ever before who need good jobs. And my funding is either flat or got cut, so I have to be exploring some other options because I didn’t have enough money before, and now I really don’t,’” says Valle.

Still, starting a program requires more than just raising funds, advises Valle. “You have to really look at your local economy, and what kinds of jobs are available, and determine whether ISAs are the right tool for your community based on the opportunities that exist.”

She believes ISAs can be a viable form of financial support for people who traditionally do not have the financial or social capital for tech-training programs. Which, in turn, can bring more diversity and underrepresented people to the tech industry. According to studies published by NSC, nearly one-third of U.S. workers lack digital skills, and people of color make up a disproportionate percentage of them.

Still, Valle acknowledges, this may not be the best time to jumpstart a new program with a financial model that may be risky in the short term. “Any kind of new program—not just an ISA—takes time and energy from staff to make sure you have relationships with training providers, funders and supportive services in place,” she says.

“In the midst of a pandemic,” she cautions, “many people are rightfully asking: Is this the right time to start a new venture?”