Income Share Agreements, or “ISAs,” are an alternative financing option that help students pay for college. While ISAs are synonymous with innovative education organizations like coding bootcamps, the idea is actually not new! Keep on reading to learn everything that you need to know about income share agreements!
What is an income share agreement?
The basic idea of the ISA is simple: instead of paying tuition or taking out loans, students are promising to pay back a future percentage of their salary. This allows them to obtain an education without putting up as much money up-front, and rather repaying it when they have an increased salary potential.
Essentially, an ISA provider will give you the funds for college and then you will be contractually obligated to pay the provider a percentage of your salary for a set period of time. Typically, the income-share rate is anywhere from 2% to 10% of the student’s future salary. However, the repayment term and amount are capped.
In contrast to student loans, ISAs do not accumulate interest but many students do end up paying more than the original amount they borrowed.
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How do ISAs work?
Nothing, or very little, up front
If you’re using an ISA at a coding bootcamp or comparable institution, the school you’re attending will cover the vast majority, or all, of your educational expenses. You won’t pay anything as you go through school, making it a very affordable option for students who are spread thin financially. You’ll begin improving your earning potential right away and leave the repayment until later.
Keep in mind, this may not apply if you take out an ISA for a standard four-year college education. Although you won’t have to pay any of your ISA up-front, you probably won’t be able to borrow the entirety of your educational funds on an ISA. These degrees are more expensive and have less predictable income outcomes.
Also see: Top coding bootcamp scholarships
Contingent on your landing a job
ISAs only come into effect once you’ve landed a job through your new degree credentials. So, you won’t begin repayment until you start seeing your wages rise. Some schools have certain requirements for graduates to ensure that they are actively searching for a job. Make sure to read the fine print of your agreement to see what happens if you are unable to land a job post-grad.
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What is an ISA cap?
ISA caps are the maximum amount that you will be required to pay back under an ISA. So, if you end up earning extremely high wages, you may end up paying back the entirety of what you borrowed after only a few years. In this case, an ISA cap will come into place and you won’t have to pay any more.
Any reputable ISA should contain some sort of cap, and most should be between 1.5-2.5 times your original borrowed amount. So, if you borrow $100,000, you should not have to pay back any more than $250,000 in total, regardless of how high your wages end up being.
Are ISAs widely available?
ISAs are a burgeoning field that are increasing in scope every year. Though they gained in popularity through their adoption by programs such as coding bootcamps, they are becoming more available for colleges as well. That being said, they still tend to favor pre-professional, specialized education, such as computer science, nursing, medical school, engineering, and the like.
Benefits of income share agreements
Only pay once you start earning
The biggest benefit of Income Share Agreements is that students only need to pay back their ISA if they get a job and earn a certain amount of money. Unlike student loans, which must be paid back in almost all circumstances, Income Share Agreements have contingencies for employment and earnings.
Incentives for the educational institution
Because ISAs flip the education financing model, the school has a vested interest in recouping their investment. This creates an incentive for an educational institution offering ISAs to ensure their program is rigorous and prepares you for the workforce. This can put the onus on the institution or ISA-granting organization to help you connect with post-graduate employment opportunities. They may also invest resources in networking infrastructure and pipelines into positions at specific corporations.
Downsides of income share agreements
Lack of availability
The biggest downside to Income Share Agreements is that they may not be widely available for all schools and majors. Certain ISAs will only be for specific areas of study.
ISAs prioritize and favor specialized education tracks because they can predict graduates’ future salaries with more accuracy. As a result, you’ll get the best deal out of an ISA if you are studying a more pre-professional track in school.
Majors in fields such as humanities, arts, or social sciences, that are more versatile and generally provide a less specialized education, often have less favorable terms of repayment, requiring higher percentages of your salary and/or longer repayment periods.
Less regulation
ISAs also lack some of the regulations and legal protections of federal student loans. We always recommend that students read the fine print and consult with the ISA provider if they have any specific questions as every Income Share Agreement is different.
Make sure to shop around among ISAs and compare your agreement terms with the industry standard. If an ISA asks for a larger share or larger time frame than other options, they may be taking advantage of you. In this case, you may be better off taking out more traditional student loans.
Potential to pay more than you would with loans
Another potential downside to ISAs is that you may actually end up paying more in total than you would with student loans. Student loans require that you repay a specific, set amount. ISAs ask for a percentage of your income for a set time after graduation. So, the more you earn, the more you’ll end up paying to your ISA provider.
If you feel confident that you’ll land a high-paying job after your program, you may want to consider student loans over an ISA. Try finding the wage you can expect, and sitting down to calculate how much you’d end up paying back under your ISA terms. Then, look for your best student loan options, and see how much you’d end up paying back with interest.
An ISA is a great alternative to loans, but that doesn’t mean it will always be the better option for every student.
What are some schools with income share agreements?
Both schools and private companies offer Income Share Agreements. Here are a few schools that are currently offering the ISA option for students:
Bloom Institute of Technology (Online)
The Bloom Institute of Technology (formerly the Lambda School) is an online coding school that has multiple tracks so students can specialize in everything including iOS or Android Development, Data Science, Full Stack Web Development, and UX Design.
Bloom Institute of Technology offers a 110% tuition refund guarantee, where if graduates do not get a job offer paying at least $50,000 a year within a year of graduation, they will give their graduates a tuition refund!
Holberton School (Global)
Holberton School offers project-based courses in everything from Web Development to Virtual Reality to Machine Learning. The college has campuses around the world including San Francisco, CA, New Haven, CT, Columbia, and France. Holberton School alumni have landed jobs at top companies like Tesla, Facebook, Google, and Pinterest.
Holbertson’s ISA has no interest, the repayments are a percentage of income and there is a minimum income amount. If you make less than $40,000 or are unemployed then no payments are due.
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Key Takeaways
Frequently asked questions about ISAs
Can I get an ISA with a bad credit score?
Some ISAs will, however, consider your history with student loans. If you have defaulted on student loans, some providers will not grant you an ISA.
What types of programs offer ISAs?
Some providers are also beginning to offer them for four-year undergraduate degrees. Because the ISA model is based on the idea that your post-graduation income is predictable, it is in these situations that ISAs work best. Programs that prepare you specifically for one profession, such as web design, nursing, or coding are more likely to have favorable ISA terms. Because they don’t view you as a risky investment, they’ll be willing to offer an ISA for a lower percentage of your pay, and for a shorter time.
What's the best ISA?
Are there other educational options with no up-front cost?
Another option to attend school without any up-front cost is through a full-ride scholarship. Though they can be difficult to earn, they relieve a tremendous financial burden from your educational costs. You can also make school affordable through a combination of smaller scholarships, federal and private loans, and work-study. Try out our free scholarship search tool to find custom-matched scholarships, tailored to your demographics, location, interests, and more. Good luck!