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Income share agreements, or ISAs, provide college financing in exchange for a percentage of your income after graduation. ISAs are a good way to pay for college only if you have a funding gap and the following are true:
Even if you check all these boxes, you'll still want to carefully consider if an ISA is right for you. Here's when an may and may not make sense.
Before borrowing, always opt for money you don't have to repay — like scholarships, grants and work study. Once you've exhausted those, use undergraduate to fill any remaining tuition gap.
Undergraduate federal loans have competitive interest rates, low fees and repayment benefits that private options lack.
But those loans also have a borrowing cap. If you've bumped up against that, to determine which will cost the least and make the most sense to cover your remaining costs.
ISAs are a better option if you have a pretty good idea of what you'll be doing — and how much you'll be earning — after school.
Otherwise, be careful with an ISA. You don't want to get locked into an unrealistic contract.
Income projections determine ISA terms. Terms will typically be more favorable if you're entering an industry with high salaries or consistent employment. That's because you would offer the investor a better return on investment.
For example, if you’re majoring in liberal arts, an ISA may require more of your income for a longer period of time than if you planned to enter a potentially more lucrative STEM or health care field.
Ultimately, there's no way to be 100% sure of your future income. Sites such as PayScale, Glassdoor or the Bureau of Labor Statistics can help you estimate starting salaries and average earnings for your career.
It's great if you surprise yourself and earn more than those numbers. But that would also mean forking over more money for your ISA.
Unlike private student loans, ISAs are not credit-based. That can make opting for an ISA a good option if you have , or if you don't have a co-signer who can help you qualify for a loan with competitive terms.
Some ISA lenders will disqualify you based on your credit history.
Private ISA provider won't offer an ISA to students with a previous loan default, for instance. In that way, some ISAs may be similar to PLUS loans, which aren't available if you have .
ISAs may also be available if you don't otherwise qualify for federal financial aid. For example, Colorado Mountain College in Glenwood Springs, Colorado, has an ISA for Deferred Action for Childhood Arrivals, or DACA, students.
Unlike a student loan, you won’t have a fixed payment hanging over your head with an ISA.
That may make you feel like you can explore more opportunities after college — such as traveling, starting a business or taking a lower-paying job — without worrying about big debt payments.
You may also prefer some other benefits of ISAs vs. student loans:
If you plan to work for a nonprofit or government employer, pursuing , or PSLF, will likely be less expensive than an ISA. PSLF forgives your remaining federal loans after you make 120 eligible payments while working 10 years for a qualifying employer.
For example, lends to nursing students only, in part because of the predictability of the profession. But if you planned to work at a nonprofit like a hospital after graduation, you would likely want to opt for debt that would qualify for .
Unless is the only way to finance your educational program — such as Lambda School's online bootcamps — it's possible you'll have loans and an ISA. ISA funding amounts are typically enough to supplement federal loans, not totally replace them.
To , aim to avoid committing more than 10% of your projected after-tax monthly income the first year out of school. That can be difficult with an ISA, as it could take 10% or more of your salary all by itself.
Stick with federal PLUS loans if you're worried about affording payments after you graduate.
Federal loans offer , which are similar to ISAs because they tie payments to a set percentage of your income. For income-driven plans, that amount is typically 10% of your discretionary income.
Forgiveness and income-driven plans are big benefits for federal student loans. But private loans may have benefits that ISAs lack but you value: