What You Need To Know About Income Share Agreements
If this is your first time hearing about Income Share Agreements, then you are wholeheartedly welcomed. Not only will we be discussing the fundamentals of ISA, but also we will be doing so in an easy-to-understand manner.
An ISA is a contract that helps students receive education funding. This contract helps you through school, and you pay back with a portion of your post-grad salary. ISA has become a solution for students with a promising future who need help getting through school. Many see it as a healthy alternative to a student loan.
Under ISA, you are given a different tuition option, so you have some sort of breathing room to make up your mind on whether or not you want to go to college. The condition for this is that you promise to pay a percentage of your income upon graduating. And there are still instances where your payment can be paused or deferred.
After reading this guide, you will know all there is to ISA, and you can make up your mind on whether it is the right option for you and your future. You will learn what ISA is, how it works, and if it is the right option for you as a student.
What are Income Share Agreements?
An Income Share Agreement or ISA is a type of contract or agreement between a student and a school. In this contract, the school covers the student's tuition, and in exchange, the student reimburses the school after they've gotten a post-grad job. Now, the percentage you pay and the duration of the repayment may differ but as long as you meet up to your yearly earnings, you shouldn't have any reason to default on your payments. That is because there is a fixed price on how much you’re required to pay back on your ISA agreement. And as long as you retain your job, earn the minimum income threshold, you should be fine.
At the most basic level, this is what ISA means. Some consider it as an investment to their future, and yes, ISA does have many benefits, but there are also disadvantages we will discuss later on. And while these cons exist, you should remember that ISAs aren't like bank loans or mortgages; this form of academic financing is unique and actually geared towards helping students.
Here's an example to describe how ISA works:
Let's say Mike, a student, has an ISA contract. By that contract, he is going to college to study economics for four years, and after graduating, he has agreed to pay 10% of his monthly income for 24 months in exchange for his complete tuition fees ($10,000). Conveniently, Mike can have his education finances cared for, and a promising future that he dreams about.
Let's look at the fine print of what Mike's contact will look like.
The cap on Mike's total payment will be two times the amount received and the minimum income threshold. Remember, we said that these contracts are here to help, so Mike has to be earning up to $20,000 annually before he is obligated to pay back the 10%.
Let's assume the average, pre-tax, starting yearly salary, of an average economics graduate is $50,000. And let us also assume that extremely lucky economists who most likely work for investment first can earn up to $80,000, while economists who fall below the average cut earn around $17,000.
With this scenario, let's say if Mike earns $50,000 annually, he will pay $416 monthly or pay the total of $10,000 before the expiration of 24 months. In the second scenario, Mike should have paid $16,000 in 24 months, and in the last scenario, Mike wouldn't pay anything until he secures a job that pays at least $20,000 annually.
There are, of course, other protections that you wouldn't get from a regular private student loan.
Key Terms You Will Find In Your ISA Contract
It is often natural to look at such details critically. You are about to make a decision that greatly impacts your future, and it's no surprise you want to know everything. These terms also point out the differences between ISA and school loans.
Here are ISA key terms that will help you understand this offer better.
Income share percentage: Income share percentage on your contract refers to the fixed percentage of your monthly pre-tax income you've agreed to share during that contract. Your income share should fall between 2.5% - 17.5%.
Monthly payments: this is what you pay your ISA provider monthly after graduation.
The minimum income threshold: The minimum income threshold, also known as the income floor, is an amount that a student must earn before they are required to make payments. These thresholds usually range between $20,000 - $50,000, depending on the industry and program. This policy protects students who have graduated but earn below the threshold. It also gives incentives to schools to align the risk of giving out ISAs with their students. These schools use this as a way for these companies to secure the future earnings of their students, which in most cases guarantees that these students work very hard to graduate and earn good salaries.
Ceiling or Payment Cap: ISA payments are capped at an agreed-upon amount. This way, students don't get punished if they make higher net incomes. For students who become extraordinarily successful, this policy protects their wealth, guaranteeing that you wouldn't make unreasonably large payments.
Payment caps usually range between 1.5x – 2x the tuition amount that was given to the student.
Payment Window: Your payment window is how long your ISA contract lasts. Upon securing a job, the payment window usually ranges from two-ten years. Within this time frame, a student is expected to pay off their ISA.
Some ISAs will consider the months in which you earned less or below the threshold, others may extend the repayment term, but this isn't always the case.
Required Payments: this is by far the most common way for one to settle their ISA. Since ISA is designed, so you pay a percentage monthly for a fixed period, the monthly payments you make are called required payments.
Automatic deferment: this is a situation where you are unable to meet your monthly payments. In cases where an ISA recipient suffers involuntary unemployment, or if they can't meet the threshold, their payment obligation is automatically waived without any penalties. Unlike with loans where failure to meet these required payments attracts penalties. With ISA, your payment gets suspended until you're back on your feet. It's like having an insurance policy to protect you when you can't meet the conditions of a loan.
Is an ISA right for You?
There are several reasons why the ISA option may be the best option for you. There are also some disadvantages that not everyone will be able to handle. To figure out if ISA is good for you, you must first weigh these benefits and disadvantages and see if they're comfortable.
Reasons why ISA is good for you
- ISA gives you money upfront for schooling when you're unable to afford it on your own
- ISA is the solution for students who can't take a loan because they have a poor credit history
- If when you graduate, you're certain that you will be in a better financial situation to repay your ISA.
- If you have some savings, but you need to use it for upkeep while studying
Disadvantages of ISA
- Most deferred tuition plans will have you paying more than you would have if you paid upfront. While these payment alternatives are good and considerate to students, they also make a reasonable profit.
- If you have other outstanding debts after graduating, ISA will still collect its income share percentage, which may make paying your other debts more difficult.
- If you do not plan on getting a job after graduation or if you have dreams of becoming self-employed, then ISA may not be the best option for you.
Which boot camp offers an Income Share Agreement Option?
For your ISA in App Academy, you have an option to start without paying a dime. You have zero deposits and zero tuition. The payment floor is $50,000, so you do not start paying off your ISA until you're making a pre-tax income of nothing less than $50,000. You pay back monthly on an agreed income share percentage of 15% of your monthly income. Its payment window is 36 months or until you reach the ISA maximum of $31,000.
Wyncode: this Bootcamp offers full and part-time training on full-stack development, front-end web development, digital marketing, and UX/UI design developments in Miami, Florida. This boot camp lasts for ten weeks when on the full-time program and 12 weeks for part-time.
Wyncode's ISA policy allows only three students in every cohort to enroll for the full-time program with no tuition upfront. This contract is also only given to students who have financial needs. Candidates can begin paying back when they secure a job that pays up to $40,000 a year.
Lambda School: the online Lambda program can last anywhere between 6-12 months. It offers several courses for data scientists, full-stack web developers, iOS developers, and user experience developers. This school stands out also because students have access to instructors, student success advisors, career coaches, and mentors. They also support student study groups which make learning easier and interesting.
For its ISA program, Lambda collects 17% of your income for 24 months once you start making up to $50,000 per year or until you reach the maximum payment of $30,000.
Juno College: Juno’s income share Agreements offers students an opportunity to learn web development at a professional level with no upfront payments. Students get to pay back only when they can make up to $50,000 per year. This gives students the skills they need for a better future, the experience and support to make that wish a reality.
The reality of any type of payment option is that you really need to read every part of that contract. Make sure you've read everything and you understand what every part means before signing. This way, you know exactly what to expect once you've graduated and gotten a job. If any surprises come up, you know it wasn't in the original agreement, and you can get your lawyer to step in immediately.