“It was extremely difficult, before I got my monthly payments down, to be able to pay rent, buy food,” Wilmsen said. “I called [the loan servicer] multiple times and told them this and they were very unsympathetic… this whole situation was brought about because Purdue made a mistake.”

Income-share agreements, known as ISAs, are an alternative type of student-loan financing where a borrower receives a loan, then pays a percentage of their income after graduation. The terms of an ISA depend on various factors, such as their major and projected future earnings.

ISAs are considered a type of private student loan by the government. Recently, the Consumer Financial Protection Bureau, a consumer watchdog, said that the ISA industry cannot claim exemptions from rules governing student lenders.

The  West Lafayette, Ind.-based university’s Back a Boiler program, launched in 2016, offers ISAs to students seeking alternatives to traditional federal and private student loans. 

Earlier this month, the university said it had suspended the program. “If it’s actually shut down, that would make me feel good,” Wilmsen said, “because I don’t want other people to have to go through some of the stuff that I’ve been through.”

Wilmsen’s story about his ISAs, alongside others’ experiences, offers a cautionary tale for students seeking an alternative to taking on piles of loans for their education, amid a national conversation over the student-debt crisis.

Pitfalls of taking on a non-federal student loan

Wilmsen always wanted to be an engineer.

Growing up in La Porte, Ind., surrounded by family and friends who attended Purdue, he had his heart set on attending the best engineering school in the area. 

Determined to become an electrical engineer, Wilmsen took out a $15,000 ISA for the 2018-2019 academic year, and a $14,000 ISA for the 2019-2020 academic year, according to documentation seen by MarketWatch. He also currently owes $12,000 in federal student loans on top of the ISAs. 

His total monthly payment for the two ISAs is nearly $600. Payments on federal student loans have been suspended since March 2020. Unlike federal loans, payments towards private loans like ISAs cannot be paused by the government.

And unlike ISAs, if President Joe Biden cancels $10,000 in student-loan debt, while Wilmsen would only be left with a very manageable $2,000 debt obligation, his $29,000 in ISAs remain.

Purdue’s ISA program in flux due to lender pulling out

The Back and Boiler program is no longer available for new applicants in the 2022-2023 aid year, according to the school’s website. The school also listed a new loan servicer, Launch Servicing.

Wilmsen’s loans were initially managed by Vemo Education, a venture that manages ISA programs. MarketWatch was not able to reach a Vemo spokesperson via phone and email by the time of publication.

A Purdue spokesperson said that the college switched loan servicers because Vemo Education had transferred servicing operations to Launch. Since Launch did not originate ISAs for new students, and only maintains accounts with existing students, Purdue had to suspend the program until it found a replacement.

The school stressed that the suspension was due to not finding a “suitable” company to run the ISA program. The spokesperson also added that ISAs are a “useful” alternative to private and Parent PLUS loans.

According to Purdue’s website, more than 1,600 students have ISAs with the school, totaling around $17.9 million in dollars owed. 

Wilmsen’s customer service saga

A key part of Wilmsen’s frustrations stemmed from what he alleged was the less-than-adequate customer service he experienced during the servicing process. That, he added, resulted in the company asking him to pay a higher monthly rate than he was supposed to. 

When Wilmsen graduated in May of 2020, he had a six-month grace period prior to make his first payment. He knew that payments would come due, so he uploaded his job offer with his salary and other information to the payment portal. But when the six months were up and he tried to initiate payments, he said he was ghosted. He asked multiple times about how payments would be processed. 

“‘You guys should have started charging me’,” he recalled telling Vemo. “I asked them multiple times… and they assured me I was fine, no payments were due yet.”

In May 2021 — a full year later — he was asked to submit proof of employment again. He called and said he had already started working and graduated months ago. Turns out, the company had received the wrong graduation date from Purdue, he said.

“And they said that I owed a total of $3,400.56 in missed payments, and they increased my monthly payment by $283.38,” Wilmsen said. 

He was happy to pay back what he owed, but the pressure of paying so much off over a short period of time was heavy: “At one point, I was paying $661.22 per month.”

Wilmsen said that he had to ask his parents for help with finances while he tried to fix the error that he alleged Vemo, the student-loan servicer, made in assuming he did not report his graduating a year earlier. 

After hounding the account manager at Vemo to fix the error, or at least reduce the payments per month, he succeeded and got his payment down to $495.92 a month, which included $118.08 per month for the missed months. 

Wilmsen then received a raise from his company, which meant that his income-share part of the agreement would push his monthly payments up to $594.62 a month — which included the $118.08 additional amount he owed.

He was then transferred to a new loan servicer who works with Purdue, Launch Servicing, which he said is now undercharging him instead, sending Wilmsen down another rabbit hole of worry, as he’s worried about being hit with penalties later on.

“They took out the first payment one month ago, and they’re charging me the wrong amount,” Wilmsen said. “They’re charging me $118.08 a month. And based on my previous experiences, I know once they figure it out, they’re going to come back and try to increase my payments even more. Which I wouldn’t be able to afford because I’m already paying almost $600 a month.”

Servicing woes

Wilmsen’s experience bears resemblance to the servicing woes faced by millions of other student-loan borrowers across the country. Some loan servicers’ practices, such as steering borrowers into forbearance, have been called out by government regulators, who are attempting to heal the broken system from within.

But advocates in the student-loan space are wary of bad servicing practices, despite ISAs being touted as an alternative.

In 2020, the Student Borrower Protection Center and the National Consumer Law Center filed a complaint with the Federal Trade Commission, alleging that Vemo engaged in deceptive marketing practices, and miscalculated students’ starting salaries and income growth, making ISAs seem cheaper and more attractive.

At the time, Vemo co-founder Jeff Weinstein told the Washington Post that the company was updating its data and said the complaint appeared to be based on older version of its comparison tools. “ISAs are, in many respects, fundamentally different from loans, so comparing the two is not always straightforward,” Weinstein told the paper. “We work continuously to improve our Comparison Tool to ensure that it is as clear and accurate as possible.”

These servicing problems are just the latest example of the problems inherent in ISAs, Ben Kaufman, who heads research and investigations at the D.C.-based advocacy group the Student Borrower Protection Center, told MarketWatch.

“The ISA industry promised that its product would be safer and better, but day after day, we see that these private student loans are every inch as dangerous as what came before them,” Kaufman said.

Kaufman called ISAs a “debt trap.” He said Purdue should revisit cases like Wilmsen’s, but also make a point of “totally absolving students of any obligations they may have been driven into.”

Wilmsen said he had since been told by Launch Servicing that he wasn’t going to be charged until they drew up a new contract for him. After being contacted by MarketWatch, Launch said that the company had investigated and fixed the payment errors and confirmed the new numbers with Wilmsen.

“Launch Servicing is an experienced, fully-licensed and compliant consumer loan servicer,” a spokesperson said. “Launch takes great pride in the level of service it delivers to customers.”

Wilmsen recalled the moment when he first saw mention of the income-share agreement program at Purdue.

“I was still living in a dorm. I got multiple fliers slipped under my door, and was sent emails,” Wilmsen said, “all where they implied that this loan was better than private loans and federal student loans, and that you’ll end up paying less per month and in total than you would on federal student loans.” 

His own experience, he said, has not proven that to be the case.

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