How Income Share Agreements Offer Real Repayment Flexibility
How does an Income Share Agreement (ISA) work?
An Income Share Agreement (ISA) is an alternative way to fund education that can be more flexible and more affordable than traditional fixed payment installment student loans. When a student enters an Income Share Agreement, their tuition is funded and, in return, they agree to pay a percentage of their future income. Students can now invest in themselves and their future.
ISAs are built to ensure payments remain manageable
Income Share Agreement payments are calculated as a fixed percentage of the student’s future income. If income falls or rises, the percentage is fixed and stays the same.
ISAs also have another innovative feature - threshold income - if you don’t earn over a certain amount (usually $30k), you don’t owe a payment that month. With a traditional fixed payment installment student loan, you owe the payment whether you are working or not.
ISA Provider and Student interests are finally aligned
ISAs are always paid as a percentage of the student’s income. The more the student makes, the more the ISA backer receives. With Income Share Agreements, backers want to see students succeed. They want them to find the best career pathways possible, and the best jobs. They want them to be in work environments that will catalyze their growth, and the backers actively work to help support job growth. It’s more of a partnership than a traditional student loan lender who only wants their payments paid. ISA backers invest in the student like investing in a startup.
How are Income Share Agreements different from traditional fixed payment installment student loans?
ISAs differ from other student loans in important and fundamental ways.
First, ISAs don’t have interest nor an interest rate, though they can have financing charges. Unlike other forms of student debt, ISAs do not accrue additional costs (or interest) over time. Whereas traditional fixed payment installment loans become more expensive the longer a borrower takes to repay, this is not the case with ISAs. In an Income Share Agreement, the student pays a fixed percentage of their income for a fixed number of payments, regardless of income fluctuations. This percentage doesn’t change, and the number of payments isn’t increased. The payment amount is generally lower in the early career years when most salaries are lower.
Second, with traditional fixed payment installment student loans, the lender receives more money when the student takes longer to pay. Loan interest keeps on accruing with time and can add up to a lot of extra payments. With ISAs, the number of payments nor the percentage of income changes. And the ISA backer’s incentives are aligned with the student’s - when the student succeeds, the backer does too.
Real repayment flexibility
Income Share Agreements offer real repayment flexibility to students. Now students fund their education and start their careers with a backer that wants to see them succeed. Students can leave school without being stranded in a sea of debt.