What is an Income Share Agreement?
Student Debt Crisis
43 million Americans, one in six American Adults, have some amount of federal student loan debt. We have a $1.6 trillion federal debt bubble in the United States -- with another $119 billion in private loans compounded on top of it. 65% of students who graduated in 2018 entered the workforce with some amount of student debt. On average, each student owed $29,000.
But what do these numbers mean? It means that, before you enter the workforce -- before you have money of your own, really -- you are expected to give a fixed, initially non-negotiable amount of it away. You’re paying back an institution you settled on early on (when you were 19, maybe, and didn’t really know what taking out a loan even meant), for reasons that may now be unclear. Perhaps the lender seemed to have the best interest rates or their customer service gave borrowers a sense of confidence.
The reality, however, is a significant majority of students are now graduating college already owing money. The worst part? There’s no safety net if you can’t pay it back. It’s a fixed amount, and that’s that -- you owe that amount of money, regardless of life circumstance, your job, or anything else post-graduation.
Income Share Agreement Overview
Income Share Agreements provide an alternative education funding route. An Income Share Agreement, or an ISA, is an agreement where a student receives an upfront payment for tuition and, in return, agrees to pay a percentage of their income for a set number of payments. It's a form of education funding that puts students and their funders on the same side. It also ensures students can always afford their payments by basing them on a percentage of income rather than a fixed payment amount.
With an ISA, everyone has the same goal: seeing the student succeed. How? An ISA payment is always affordable, because it is based off of the student’s income, and not a predetermined amount. The percentage of repayment doesn’t change with income, and there’s a set end date. When you enter an ISA, you know exactly what percentage of your income you will pay, and for how long. It’s really that simple.
What happens if the student doesn’t find employment after college or if they only make $30,000 to start out? Income Share Agreements provide for these scenarios. In this case, the student doesn’t pay. On the other hand, what if the student makes more than originally predicted, making the value of the forecast much higher? There’s a cap on the amount paid, to prevent it from skyrocketing. You’ll never pay more than three times what you borrowed.
Funding the Future, Today
The student loan debt crisis in the United States is proving to be one of the most prominent socio economic challenges in recent years. With education costs continuing to rise in a perpetual trend, lives are dictated by the desire to access education institutions that have unbelievably high financial barriers to entry. The way in used to be accruing debt for several decades and eventually, hopefully, paying the money back. Income Share Agreements provide a more flexible and comprehensive alternative to this.