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Income Share Agreements for College

When it comes to borrowing money for college or grad school, you may automatically think your only option is a traditional student loan. Of course traditional student loans are an option, but there is another more unique option known as an Income Share Agreement. We asked one of our partners who specializes in Income Share Agreements, Stride Funding, to share some expert answers to some of the most common questions about this lesser known, interesting alternative.

Income Share Agreements (ISAs)

An Income Share Agreement, or an ISA, is an agreement where a student receives an upfront payment for tuition & fees and, in return, agrees to pay a percentage of his / her future income for a set number of payments. It's a form of education funding that puts students and their funders on the same side. Funders only succeed when students do!

ISA payments tied to income give students confidence that payments remain affordable, no matter their earnings. And some ISAs build in a minimum income threshold for payments, which means you don’t need to make payments if your income is below the threshold.

Your ISA funder has an invested interest in your success and may offer services to help you succeed. For example, Stride offers career services (for free!) to ensure you get the best outcomes and see Stride as a real partner in your career journey.

Apply for a Stride Funding ISA

Recommendation
Best for Private Funding
Interest Rates

Payments based on a fixed percentage of future income

Lower (or no) payments when you're unemployed or underemployed.

Repayment Terms

Payments based on a fixed percentage of future income for up to 60 months after graduation

Only pay when earning more than the minimum income threshold ($30k or $40k depending on program)

Payments stop early if you ever hit the payment cap (2.0x your initial funding amount)

Income Share Agreements vs. Student Loans

An Income Share Agreement differs from a traditional student loan in 5 main ways:

1. Interest

ISAs don’t have accruing interest. You are agreeing to the repayment structure (where you pay a percentage of your future income for the payment period). This is a major difference between an ISA and student loan.

2. Payments

ISA payments are based on a fixed percentage of your income once you are required to make payments. With traditional student loans, payments are generally based on your loan balance, regardless of what you earn, with one exception: income-driven repayment options offered in the federal student loan program.

Although you may think this is similar to an income-driven repayment plan offered on federal student loans, it’s not. Here’s why.

An income-driven repayment plan offered by a federal student loan will typically require you to make up to 25 years of payments. Under one of these plans your monthly payment on all of your eligible loans will be tied to your income, however your interest rate will not change. Meaning, your loan will still continue to accrue interest even if your monthly payment does not cover the amount of interest you are accruing every month.

With an ISA, you aren’t accruing interest, you are making payments based on the terms of your agreement. Your payments are tied to your income, but you will never have a longer duration than 10 years, and if you fall below the minimum income threshold you will not be required to make payments. But keep in mind, each ISA is unique and will require you to follow the terms of each ISA.

Depending on the ISA provider, you could have unique repayment terms with each ISA. If you have two ISAs that each require you to pay 3% of your income, each ISA will take 3% of your income, totaling 6% of your income every month.

When it comes to borrowing to pay for college, you always need to understand the terms, conditions, and your obligations!

3. Flexibility

ISAs typically have a grace period after graduation before payments begin. They also allow you to pay nothing during any period where you make less than the minimum income threshold (usually $30-40k per year). Now the way this is handled will depend on your ISA. Some ISAs will allow you to count periods of unemployment towards your total term, while others will not. (Once again, it’s important to understand your terms before borrowing the money!)

Private student loans tend to have rigid payment schedules that require payment regardless of life conditions (such as unemployment, family leave, etc.). Although there may be the ability to postpone payments, you will likely increase the total amount you owe your lender.

4. Cosigner

ISAs do not require a cosigner for students. Private student loans typically will require a cosigner—over 90% of undergraduate students need a cosigner to qualify for a private student loan.

5. Duration of Repayment

Typically ISAs have a repayment period less than five years. Some ISAs may also build in a maximum repayment term (which may take into account time you were and were not making payments). Some ISAs may also have a payment cap, which is essentially a maximum amount the student will pay over the repayment term—typically this is about 2x the amount you borrowed.

Many student loans will have repayment periods of 10-25 years. Depending on your loan type, repayment can even be up to 30 years with student loan consolidation.

Who Is My Lender With an ISA?

Stride Funding, one of our partners, supports students directly, and certifies and disburses all funds via your university. Stride’s capital is sourced through impact investors who are interested in supporting students to have productive and high-impact careers.

Other ISA opportunities could be offered through your school, as well.

What is the Interest Rate on an ISA? Does interest work the same way?

A defining feature of Income Share Agreements is that there is no typical accruing interest on payments. Instead, students pay a fixed percentage of their future income for a set number of years following graduation. Although the terms will vary between ISAs, any time you aren’t required to make payments (for example, your income is below the minimum threshold), you won’t have interest accruing. When your payments start again, you just pay the agreed upon percentage of your income.

This means that the payments are flexible and easy to budget, as they always represent the same percentage of your income.

What this also means? As long as you’re above the minimum threshold, it doesn’t matter how much you make. If you make $30,000 or $100,000, you will pay the agreed upon percentage until you complete your terms of repayment—by either paying for the agreed upon number of years, or hitting your payment cap.

How Are ISA Terms Determined?

ISA funders will evaluate your career plans. Income predictions will be made based on your program, educational history, and plans for the future. The percentage of your income and the length of your payback term will depend on the outcome of these models.

What type of programs can I use an ISA for? Non-degree (certificate), undergraduate degree, graduate degree, doctorate degree?

Well, it depends on the ISA. If you’re using an ISA offered by your school, the option may only be available to students in specific programs.

Stride offers ISAs primarily for students in graduate programs, second Bachelor’s degrees, or undergraduate seniors. Most students are in healthcare (nursing or PAs) and STEM (engineering or computer science) programs, though that is not a firm requirement.

Apply for a Stride Funding ISA

Recommendation
Best for Private Funding
Interest Rates

Payments based on a fixed percentage of future income

Lower (or no) payments when you're unemployed or underemployed.

Repayment Terms

Payments based on a fixed percentage of future income for up to 60 months after graduation

Only pay when earning more than the minimum income threshold ($30k or $40k depending on program)

Payments stop early if you ever hit the payment cap (2.0x your initial funding amount)

 

Do all schools accept ISAs?

Your school could have their own ISA program, which may have limitations. If you go with an option like Stride, your school would simply certify your funding needs in the same way they would with a traditional funder or loan provider, and Stride would then disburse the funds on your behalf.

How do you apply for an ISA?

If you’re looking at an option offered by your school, contact your financial aid office for more information.

If you want to use our partner Stride, you can easily complete one of their applications in less than a minute.

Will there be a credit check? And is it the same as a credit check for a private student loan?

Unlike with most private loans, ISAs don’t require borrowers to show sufficient income or meet a minimum FICO score. However, many ISA lenders will complete a credit check to make sure you don’t have an adverse credit history.

What Else Should I Know About ISAs?

ISAs may be limited to students enrolled in certain programs.

For example, Stride only offers ISAs to Graduate students, students obtaining a second Bachelor’s only (must have Bachelor’s degree), or seniors in some undergraduate programs.

Also, given ISA providers like Stride only do well if you do well, they’ve built a host of career support tools (e.g., weekly content, resume / cover letter services, placement partnerships, mentorship).

How long could it take for me to pay back an ISA?

This all depends on your ISA, but repayment terms are typically five years or less. Some ISAs will offer a payment cap, and others may offer a maximum repayment term (the amount of time you’re required to make payments).

Is an ISA Considered a Student Loan?

Although ISAs serve the same purpose of a student loan in terms of helping you afford school, they aren’t technically classified as a student loan. One thing you need to know, you can’t include your ISA in a private student loan refinance if you want to restructure your debt.

 
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