Income Share Agreements—The Good, the Bad, and the Ugly
To borrow or not to borrow? Student loans are infamous and a running joke among 25–30-year-olds claiming they are still paying them off. While income share agreements are not the same as loan agreements, you would still take money to fund your studies and pay back more or less than what you were given.
We’ll help you understand how income share agreements operate and what they entail, and we will weigh their pros and cons.
What Is an ISA agreement?
An income share agreement (ISA) is a legal document that students and universities or other organizations enter into. The agreement describes the terms and conditions of funding your education. Based on the ISA, your college fees or a portion of them will be covered, and you will use an agreed-upon percentage of your future salary to repay the funding for a set amount of time.
An ISA is more of an investment than a loan as your college is essentially paying for your studies to prepare you for a well-paying job so that you can repay them in the future.
How Does an Income Share Agreement Work?
Unlike student loans, income share agreements are unregulated and can cover specific terms based on your major and the college you’re attending. Here’s how ISAs work:
- The college estimates the amount of money they’ll give you and want back based on your major and potential future earnings
- Your college and you agree on how much of your college fees will be covered
- You agree on when you’ll start repaying them, which percentage of your salary, how long you should pay them back, etc.
Depending on the terms and your earnings, you may end up repaying less than what the college gave you. For example, if you agreed on 5% of your income over five years, 5% of your income may be more in the first year but less later on as you get a raise.
In case you stop working, or your income is lower than the amount stipulated in the agreement, you could pause your payments.
Should I Enter Into an Income Share Agreement?
Before you decide to sign an income share agreement, you should consider its advantages and disadvantages:
Can I Sign Income Share Agreements With My College?
Not all colleges offer ISAs, so you should check whether you have that option at the college you’re attending. Many universities and schools offer ISAs, including:
- Holberton School
- Redwood Code Academy
- Awesome Inc
- Lambda School
- Northeastern University
- Norwich University
- The University of Utah
- Colorado Mountain College
- Clarkson University
- Messiah College
- Purdue University
- Lackawanna College
- Allan Hancock College
- Make School
What Should an ISA Contract Cover?
Income share agreements are unique to each student’s situation, but most of them would consist of some or all of these terms:
- Income share percentage—the fixed percentage of your monthly income, typically between 2.5% and 17.5%
- Minimum income threshold—the minimum income you have to earn to start making payments
- Payment window—the length of your income share agreement, usually from two to ten years
- Payment cap—the highest possible amount of money you have to pay, ranging from 1.5 to 2 times the tuition amount
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