What Is an Income-Share Agreement (ISA)?

An income-share agreement (ISA) is a form of college financing wherein repayments are based on a student’s future income. An ISA provider gives the student money to pay for college, and the student contractually agrees to pay the provider a percentage of their salary for a set period of time.

With most ISAs, the income-share rate is anywhere from 2% to 10% of the student’s future salary. That means when their salary rises, so does the ISA payment. However, the repayment term and total repayment amount are capped.

Unlike student loans, ISAs don't accrue interest, but many students do end up paying back more than the original amount that they borrowed. Most ISAs don't require a co-signer or 澳洲幸运5官方开奖结果体彩网:good credit, so they're more attainable for some students than other types of financing.

How Income-Share Agreements Work

The concept of using an ISA to pay for college was first introduced in an essay by Milton Friedman in 1955. Friedman claimed that debt is an inappropriate way to finance education. Instead, he suggested using a method similar to investing in the stock market, by which the amount of a lender’s payment is determined by the student’s success—just as a shareholder benefits when a corporation grows.

澳洲幸运5ౠ官方开奖结果体彩网:With student loan debt at all-time highs, ISAs are slowly gaining popularity among students. In 2019, more than $250 million in ISAs were originated, with an estimated additional $300 million in 2020. However, unlike student loans, ISAs aren't widely available. Most ISAs are offered through non-Title IV institutions like coding bootcamps, or other career schools and private lenders. Only 28% of all ISAs offered in the U.S. are available at Title IV institutions. ISAs for higher-paying college majors, such as chemical engineering, typically have a lower rate and a shorter te♎rm than those offered to students in lower-paying majors.

The most well-known ISA was Purdue University’s "Back a Boiler” program, which based its income-share rate on the student’s field of study. However, the Back a Boiler program was halted in June 2022, after their lending partner, Vemo Education, shuttered following several lawsuits for deceptive business practices. Purdue was also warned that they were in violation of federal law by telling students that ISAs are not loans.

Coding academies (career schools that teach computer programming) have also started to offer ISAs as a form of financing. As these schools are typically unaccredited, they aren't eligible for federal financial aid. One example of such an institution is Hack Reactor by Galvanize. They offer an ISA for their coding bootcamp that requires a $100 deposit. Payments are then deferred until you secure a job making $60,000 a year. After that, you'll pay 10% of your monthly income for 48 months or until you hit the cap.

ISAs are also offered through a few private lenders. Edly markets their ISA as an income-based repayment plan. Only supported programs are eligible, and no payments are made while in school. After graduating or dropping below half-time enrollment, the borrower has four months to get a job making more than $30,000, at which point, payments begin. Edly doesn't disclose the percentage of income expected in payment.

Advantages and Disadvantages of ISAs

ISAs can be appealing to borrowers because they don’t accrue interest and have a set repayment period. That said, the market for ISAs is largely unregulated by the federal government and most states, which can be risky for borrowers. ISA proponents argue that the agreements are neither a loan nor credit, which means they wouldn't be 澳洲幸运5官方开奖结果体彩网:subject to consumer protection law. However, in 2022, the the Consumer Financial Protection Bureau (CFPB) issued a consent order against Better Future Forward, an ISA lender, that established that ISAs are indeed debt as defined under the Consumer Financial Protection Act of 2010.

According to the Student Borrower Protection Center (SBPC), issuers of ISAs may engage in the following practices, which can harm student borrowers:

• If a borrower defaults, an ISA provider may use harsh collection activities, such as charging high fees and setting off the debt against the borrower’s state tax refund.
• In most cases, ISAs are used to provide funding after a student has already exhausted their federal student aid, which could lead to excessive debt after graduation.
• A student’s income share amount is determined by their field of study, which leaves room for discrimination because races, genders, and national origins may be associated with certain college majors.

The Bottom Line

Students should carefully consider all of their options when borrowing money to pay for college. For those thinking of getting an ISA, it’s important to🎃 weight the total amount owed and compare that against what a student loan would cost. Whether or not an ISA is a good option to pay for college depends on the student and their financial situation.