What Is an Income Share Agreement?

What Is an Income Share Agreement?
portrait of Jordan Stewart-Rozema, Ph.D.
By Jordan Stewart-Rozema, Ph.D.

Published on April 19, 2021

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Paying for your education can be complicated, daunting, and downright confusing. There are a lot of options when it comes to funding your degree — student loans, grants, scholarships — and a lot of questions. Subsidized or unsubsidized? Federal or private? Variable or fixed?

One option you might have come across while researching college funding choices is a relatively new payment model called an income share agreement (ISA). While still pretty rare, this tuition payment method may be on the rise in the world of higher education.

In this article, we break down everything you need to know about ISAs to help make your college funding research a little less confusing.

What Are Income Share Agreements Exactly?

Similar to a loan, an ISA is an alternative way to pay for a degree program. Instead of paying tuition while enrolled, a student with an ISA pays for their program only after they've graduated and found a job. The graduate then pays a fixed percentage of their salary over a predefined period or until they reach a cap on how much they're required to repay.

For instance, a student may pay 5% of their salary for 10 years or until they pay back 2.5 times the original amount they took out under the ISA. And if the student is unable to find a job in a certain amount of time after completing their program, they may not have to pay at all.

A student may pay 5% of their salary for 10 years or until they pay back 2.5 times the original amount they took out under the ISA.

The skyrocketing cost of college and staggering amount of student loan debt has led more colleges and organizations to consider the ISA model. While these agreements have quickly caught on with coding bootcamps and other nondegree vocational programs, they've seen slower adoption among traditional degree programs.

ISAs offer several benefits, though potential red flags abound for students. The primary concern is that very little regulation to protect consumers addresses income share agreements. ISA terms may include repayment percentages that are too high, or terms that are too long and may result in hefty total repayment amounts.

Income share agreements may also not allow for things like forbearance, deferment, and prepayment the way loans do. And because of the way ISAs are marketed, students may not realize what they're getting into. Some fear that ISA programs may end up prioritizing students who are more likely to do well in college or who are pursuing careers in high-paying fields.

Which Colleges Offer Income Share Agreements?

While income share agreements have grown in popularity over the last few years, they still aren't very common. One of the first and most prominent ISA programs, Purdue University's Back a Boiler program, launched in 2016.

Examples of Colleges That Offer ISAs

Clarkson University Colorado Mountain College Lackawanna College Purdue University Robert Morris University University of Utah

Many schools provide their ISA options through Vemo Education, a third-party ISA provider that's partnered with over 70 colleges, universities, and training programs since 2015.

Sometimes for-profit companies, such as Stride Funding, and nonprofit organizations, like Better Future Forward, offer ISAs directly to students. Another nonprofit called the Student Freedom Initiative will begin to offer ISAs to STEM students at historically Black colleges and universities in 2021.

How Are Income Share Agreements Regulated?

Income share agreements are not regulated at the federal level and are mostly unregulated at the state level, too. This means that you probably won't have the same kind of protections with an ISA as you would with a loan.

One major question that has yet to be definitively answered when it comes to ISAs is how they're classified: Is an ISA a loan? Is it debt? Or does it qualify as some different kind of financial product? How ISAs are legally defined will be crucial in determining whether ISAs need to follow the same consumer protection laws that apply to loans.

Legislators from multiple states have proposed bills or added language to existing regulation that would distinguish ISAs from loans, potentially exempting ISAs from such laws as the Truth in Lending Act and the Equal Credit Opportunity Act.

Because income share agreements are not regulated at the federal level, you probably won’t have the same kind of protections with an ISA as you would with a loan.

Other states seem to have rallied behind a stricter interpretation of ISAs. For instance, the Iowa attorney general's website warns students about ISA debt and states that ISAs fall under the Iowa Consumer Credit Code.

Meanwhile, the California Bureau for Private Postsecondary Education fined California bootcamps offering income share agreements, as ISAs do not comply with state regulations requiring total tuition costs to be made available to students upfront.

When it comes to federal law, a bill proposed in 2019 aimed to increase ISA adoption. But it also received heavy criticism for possibly resulting in fewer student protections. Ultimately, the bill failed to pass.

What to Watch Out for When Considering an ISA

Many income share agreements limit who is eligible. An ISA may only be offered to students residing within the United States or certain states, to students who pick specific majors, or to students who fall below a certain income level.

How much money could you be on the hook for overall? Make sure you do the math with different salary scenarios and compare an ISA's total cost to other financing options. Find an ISA with a repayment cap (not all ISAs have them), preferably a cap that's as low as possible. Caps often range from 1.5-2.5 times the amount you take out.

You'll only start to pay back your ISA when you get a job making a certain amount of money, often $20,000-$30,000 a year. Know the minimum salary threshold associated with your ISA.

Many ISA programs and providers offer additional career support beyond what you may be able to find at your school's career center. Find out whether the ISA program will help you land a job once you graduate.

The ISA may come with certain requirements that you'll need to follow when it's time to find a job. Make sure you know what these are and that they sound reasonable to you.

Feature Image: Kiyoshi Hijiki / Moment / Getty Images

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