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Income Share Agreements: What Students Should Know Before Signing

Consider your major, existing debt and potential earnings to tell if an income share agreement is right for you.
Jan. 30, 2019
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When you sign an income share agreement, or ISA, you promise to pay an investor a slice of your future salary over a period of time after leaving college.

ISAs are best for students who expect to make a high salary after college because they’ll get the best repayment terms. ISAs are marketed as an alternative to student loans, but they’re not common. Check with your school to find out if they’re available.

» MORE: Is college worth it? Here’s how to do the math

How income share agreements work

There are two main types of ISAs:

  • An ISA that requires you to borrow student loans before funding. The Back a Boiler program at Purdue University in West Lafayette, Indiana, is the best example of this type of agreement. Funding amounts vary under these types of programs.
  • An ISA that funds your entire education. This program is typically available through alternative education programs, such as App Academy’s online bootcamps for coding. These tend to take a larger percentage of income over a shorter period of time, experts say.

In both models, the school provides upfront funding, sometimes with help from private capital sources. They also determine what percentage of your future income you’ll pay them and for how long, depending on your field of study.

For all income share agreements, repayment begins once you leave school. You may receive a grace period before payments are due, and some agreements include a minimum income threshold before repayment starts.

ISAs have a condition that if you start working and then lose your job, you can stop making payments.

What terms to expect with income share agreements

Students who plan to enter lucrative fields, such as STEM or business, are likely to get the best repayment terms. If you’re studying theater or poetry, you’re unlikely to get repayment terms as favorable because you won’t offer the funder the best return on the investment.

ISAs typically cap total repayment amounts, but individual terms vary by program. You may repay more or less than the amount you receive.

Repayment lengths can be anywhere from two years to 10 years and income percentages range from 5% to 18%, says Julie Margetta Morgan, a fellow at the New York-based think tank the Roosevelt Institute who has researched income share agreements.

Let’s say your ISA requires you to pay 5% of your post-grad income over a 10-year repayment term. If your salary started at $52,000 and increased 4% each year over the 10-year term, you’d initially pay $217 each month and $31,216 overall. If that ISA required 18% over two years, you’d initially pay $780 each month and $19,904 overall.

Whether those amounts are good or bad depends on the terms of your ISA. If its value was $20,000 with a $40,000 cap, you’d save money by repaying $19,904. That wouldn’t be the case if you repaid $31,216.

Is an income share agreement right for you?

ISAs aren’t for everyone. If you’re interested in this method of paying for college, consider the type of ISA and your situation.

You’ll have to pay back both the ISA and the loan. To keep things manageable, limit your total debt to less than 10% of your projected after-tax monthly income your first year out of school. Check sites such as PayScale and Glassdoor or the Bureau of Labor Statistics to estimate starting salaries and average earnings.
You may be able to pay a higher percentage for a shorter period of time. Research the cost of living in the area where you’d like to find work after you graduate. Determine if your prospective income will cover the cost of living in that area and the percentage you’ll repay on your income share agreement.

Where to get an income share agreement

You need to attend a school or educational program that offers income share agreements as a funding option and apply directly with them. Contact the admissions or financial aid office at the school to learn more.

Private ISA funding programs are rare. You’ll likely work directly with your school’s income share agreement program.

Each school or program will have its own eligibility requirements. For example, Back a Boiler provides funding only to rising sophomores, juniors and seniors. At Messiah College, a private Christian college in Mechanicsburg, Pennsylvania, graduate students can get income share agreements.

Know what you’re getting for your money. Look at your school’s graduation rate and alumni earnings on sites like the College Scorecard. If you’re going to a training program, search LinkedIn or other professional networks to find past attendees. Ask about their experiences with the program and after completing it.

What happens if you don’t pay an income share agreement?

Each program will have its own consequences for breaking an agreement to repay. ISAs have no uniform guidelines, and they’re not federally regulated.

At Purdue University’s Back a Boiler program, for example, breaking an agreement could result in a demand for immediate payment up to the payment cap, seizure of state tax refunds and legal action.

ISAs often require the use of arbitration hearings to resolve disputes, instead of jury trials or class action lawsuits. But if you declare bankruptcy, your ISA can be dismissed in court.

Options if ISAs aren’t right for you

If you’ve exhausted free financial aid like grants and scholarships, federal student loans are always your best bet — even before ISAs. That’s because they offer consumer protections and flexible options like income-driven repayment plans. Complete the Free Application for Federal Student Aid, known as the FAFSA, to see what aid you qualify for.

If you’ve maxed out your federal student loans or your education program isn’t eligible for federal student aid, talk to your school about institutional aid it offers. You can also compare private student loan options.

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