Income Share Agreements vs. Student Loans: Which Costs Less?

Estimate your future salary to determine if an ISA will cost less than a student loan.

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Income share agreements, or ISAs, are not student loans. But ISAs can make sense as an alternative to some types of student loans — if they'll cost you less overall.

It's easy to calculate traditional student loan payments based on a loan's terms. But ISA payments depend on your post-college income. Because you can't know that specific number, it can be hard to tell how an ISA stacks up vs. a student loan.

NerdWallet looked at three scenarios to determine how different compare with federal PLUS and private student loans. Here's what we found, as well as tips and a calculator to perform your own analysis.

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To find out how much different earners would pay on a $20,000 ISA over a 10-year repayment term, we looked at three income levels — $38,000, $52,000 and $75,000. These are approximate representations of low, middle and high incomes.

We assumed each income would increase 4% annually, and used three income share percentages: 3%, 5% and 10%. Here's how they compared:

You won't always repay more than the amount you received with an ISA, but you're likely to if you’re a higher earner or have higher percentage terms.

For example, say you get a $20,000 ISA and agree to pay 10% of your income over a 10-year term. If you earn an annual income of about $75,000, you could pay back nearly $90,000; however, there’s usually a cap on the amount you can repay — don't agree to an ISA without a payment cap.

If you earned about $52,000, you'd still pay back more than your financing amount at a 5% or 10% income share. The only time you'd pay less than the original $20,000 would be if you had a small income share (3%) and relatively little income — $13,687 for a $38,000 earner and $18,730 for a $52,000 earner.

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ISAs should supplement undergraduate federal loans, not replace them. We compared our ISA findings with two common additional : federal PLUS loans and private loans.

First we looked at a $20,000 PLUS loan with an APR of 7%, repaid over 10 years. Then we considered a private loan of $20,000 with an APR of 9% with that same repayment period.

We also wanted to see how ISAs compared with , since that can reduce private loan debt. We looked at how much a borrower would spend after refinancing a $20,000 private loan to a 5% APR and new standard 10-year term after two years of regular payments.

Here's how much each would cost:

In this example, an ISA is a less expensive option than PLUS, private or refinanced loans if you'll be a high earner — as long as you only have to pay back 3% of your income. ISAs are also cheaper if you project to earn an income of about $38,000, but only if you have payback terms of 3% or 5% of future income.

However, if you're projected to make less money, you're less likely to get these favorable, low-percentage ISA terms.

Unless you have a time machine, there’s no way to know decisively whether an ISA will cost you less than a student loan. If you crave certainty, stick with the loan and look to to save money.

If you're not sure if an , do the following to estimate your post-graduation salary so you can figure out how might you might pay overall:

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Because ISAs don't charge traditional interest — and thus, don't have an interest rate — it can be hard to compare them with student loans. The ISA calculator below will provide an interest rate based on your information.

Use this calculator once you've estimated your post-grad salary and determined to estimate how much you'll repay overall.

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