Income Share Agreement Loans: A New Way to Finance Your Education
Pursuing higher education can be a life-changing decision, but it comes with a hefty price tag. According to the College Board, the average cost of tuition and fees for the 2020-2021 school year was $11,171 for in-state students at public colleges, $26,809 for out-of-state students at public colleges, and $41,411 for private colleges. Not everyone can afford to pay such hefty sums upfront, which is why many students opt for student loans. However, traditional student loans can be a burden, often leading to high debt and interest rates.
That’s where income share agreement loans come in. An income share agreement (ISA) is a financial agreement where students receive funding for their education in exchange for a percentage of their future income. With an ISA, you don’t have to take on debt, pay interest rates, or worry about making monthly payments. Instead, you pay back a portion of your income over a set period of time.
How Income Share Agreement Loans Work
An ISA typically works like this: You receive funding for your education in exchange for a percentage of your future income, usually between 2-10%. There is usually a cap on the total amount you will repay, usually 1.5-2 times the amount of funding you receive. For example, if you receive $20,000 in funding, you may be required to pay back a total of $30,000 over a set period of time.
The length of time you’ll be required to make payments varies, but it’s usually between 3-10 years. Payments are tied to your income, with lower payments if your income is low and higher payments if your income is high. Typically, if your income falls below a certain threshold, payments are paused, and no additional interest accrues.
Benefits of Income Share Agreement Loans
One of the biggest benefits of ISAs is that you don’t have to worry about accruing debt or paying interest rates. Unlike traditional student loans, which can take decades to repay, ISAs are designed to be paid off relatively quickly.
ISAs are also more flexible than traditional student loans. Since payments are based on your income, if you’re having trouble finding a job or your income is low, you won’t be stuck making high monthly payments. Additionally, since payments are tied to your income, you won’t be penalized if you don’t make a lot of money after graduation.
Another benefit of ISAs is that they can offer a more affordable option for students who may not qualify for traditional student loans. Since ISAs are based on your future income potential, they can be an attractive option for students who may not have a high credit score or a co-signer.
Drawbacks of Income Share Agreement Loans
While ISAs can be an attractive option for many students, they’re not without their drawbacks. One of the biggest concerns is that payments may end up being higher than traditional student loans in some cases. Depending on the terms of the agreement and your future income potential, you may end up paying more in the long run.
Another concern is that ISAs may be less advantageous for some majors or professions. If you’re pursuing a high-paying career like medicine or law, you may end up paying significantly more than if you’re pursuing a lower-paying career like education or social work.
Additionally, ISAs are still a relatively new concept, and there are few regulations in place to protect students. Some critics argue that they could be used unethically or lead to unfair terms for students.
Final Thoughts
ISAs can be an attractive alternative to traditional student loans, but they’re not for everyone. Before signing an agreement, be sure to do your research, understand the terms of the agreement, and consider your future career and income potential. As with any financial decision, it’s important to weigh the pros and cons and make an informed decision.