5 Income Share Agreement Terms and How They Differ From Student Loans

 October 7, 2019
How Student Loan Hero Gets Paid

How Student Loan Hero Gets Paid

Student Loan Hero is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). Student Loan Hero does not include all lenders, savings products, or loan options available in the marketplace.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Student Loan Hero is an advertising-supported comparison service. The site features products from our partners as well as institutions which are not advertising partners. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

Income-share agreement

OUR PROMISE TO YOU: Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

Private Student Loan rates starting at 0.99% APR

0.99% to 11.98% 1

Visit Lender

1.13% to 11.23% 2

Visit Lender

0.99% to 11.44% 3

Visit Lender

  • Variable APR

Income-share agreements (ISAs) allow college students to trade a percentage of their future income for a reduction in their current tuition.

But unfortunately, ISAs aren’t as simple as they sound, and some technical words are involved that you won’t usually find in a glossary of student loan terms. And although ISAs generally enjoy a student-loan-like grace period and deferment option, they’re very different than traditional forms of education debt.

For example, repayment of federal and private student loans, for example, could span 20 to 25 years or longer, racking up interest all the while. ISAs, on the other hand, accrue no interest and have a fixed end date.

For more information about how ISAs work — and how they’re different from loans — start by learning these five key terms:

We’ll also touch on some things to watch out for before signing on to an ISA.

5 Income-share agreement contract terms to know

1. Income share

Definition: The percentage of future income you agree to share with your provider.

Shares can vary from less than 2% to as much as 20%, depending on your agreement. If your ISA calls for 10% of your $50,000 salary, for example, you will shell out $5,000 in payments per year.

Of course, the higher your income, the more money you’d repay. That partly explains why ISAs don’t work well for all careers.

Student loan comparison: If you repay a federal loan on an income-driven repayment (IDR) plan, you could limit your monthly dues to a percentage of your income.

2. Income threshold

Definition: The minimum amount of income you must earn to trigger repayment.

The threshold of Lackawanna College’s ISA, for example, stands at $20,000. If you were to earn less, you wouldn’t be responsible for making a payment — although your payment term (see definition below) could stretch as a result.

Detractors of ISAs contend that students could meet the income threshold of their agreement but still struggle to make payments. Maybe you’re a Lackawanna graduate earning a $25,000 salary, for example, but also have to budget for federal loan repayment or out-of-pocket medical expenses.

Student loan comparison: If you’re repaying a federal loan via IDR, a poverty-level income could qualify you for a $0 monthly payment.

3. Payment cap

Definition: The maximum amount of money you would have to repay.

ISA contracts commonly refer to caps in terms of multiples: Your payment cap could be two or more times the amount you initially received for your education. So if you received a $10,000 ISA with a “two times” cap, for example, your maximum outlay in repayment would be $20,000.

Keep in mind that some ISAs, including Clarkson College’s, have no payment cap, making them riskier propositions for students pursuing high-paying careers.

Student loan comparison: Payment caps don’t exist, so you could end up paying significantly more in interest than the principal amount you originally borrowed.

4. Payment term

Definition: The number of payments required to satisfy your debt.

Terms could span about five to 10 years. And while you could still finish repayment before the term’s end by prepaying your ISA’s payment cap, that might be costlier than submitting payments on schedule.

You could also lengthen your payment term by failing to meet the income threshold or leaving the workforce altogether. Users of Lackawanna College’s or Purdue University’s ISAs could increase their term by as much two years and five years, respectively.

Student loan comparison: Repayment terms for loans could similarly be prepaid or prolonged.

5. Payment window

Definition: The length of time you have to make payments, even if you’ve paid less than what you borrowed.

The window protects you from a never-ending payment term. Lackawanna College’s ISAs, for example, feature five-year terms and seven-year windows, while an ISA at Purdue University’s typically carries a 10-year term and 15-year window.

When the window closes, so too does your ISA.

Student loan comparison: Such windows remain open on private student loans until the balance reaches zero (except for rare cases involving state statutes of limitation). A federal loan repayment, meanwhile, could expire beforehand — but only after you’ve made to 20 to 25 years of qualifying payments.

Consider ISA contract terms when comparing a private student loan

Let’s say you’re an accounting major, looking to supplement your federal loan borrowing. On the one hand, you could borrow a $10,000 private student loan with an 8.50% interest rate over 10 years. If paid on schedule, you’d fork over $14,878, when accounting for interest, according to our loan payment calculator.

On the other hand, you could receive a $10,000 ISA from your school, featuring the following terms:

1. Income share: 3.11%

2. Income threshold: $30,000

3. Payment term: 100 months

4. Payment window: 160 months

5. Payment cap: $50,000

On a median early-career wage ($50,000) for accounting grads — and assuming your salary doesn’t increase — you’d repay the university $12,958. (Though of course, the more your salary increases, the larger your cost would become.)

You might not see that much daylight between the costs of the private student loan ($14,878) and the ISA ($12,958), but that’s where your understanding of loan agreements and income-share contracts comes into play.

You might opt for an ISA because it wouldn’t force you to make payments if you suddenly lost your income (or fell below the income threshold), nor would you suffer the toll of accruing interest. You could also be attracted to ISAs because — unlike loans — they expire when you reach:

  • The payment cap
  • The end of the payment term
  • The end of the payment window

On the flip side, you might prefer the private student loan repayment (despite its potentially greater cost) because your high-paying career significantly shifts the math. If you swap in a technologist’s $69,000 salary for that accountant’s $50,000, for example, suddenly the ISA repayment would jump to $17,883.

Review ISA contracts thoroughly before signing on the dotted line

As income-share critics note, federal and private student loans are far more thoroughly regulated than ISAs. There’s no guarantee that your school’s contract has a payment cap, for example.

After all, ISAs are still a relatively new option. Although income-share agreement companies fund them, they’re available at only select schools offering bachelor’s degrees, as well as some coding boot camps.

Reviewing an ISA agreement line by line is smart for all students. It’s even more advantageous if you can compare your school’s contract with a student loan agreement before deciding which suits you best.

If your curiosity about ISAs is piqued, also consider the pros and cons of these agreements. You might want to review our comprehensive guide to private student loans, too.

Need a student loan?

Check out our top picks below or learn more about other ways to pay for college.
Variable APRDegrees That QualifyMore Info
0.99% – 11.98%1 Undergraduate

Visit College Ave

1.13% – 11.23%2 Undergraduate

Visit SallieMae

0.99% – 11.44%3 Undergraduate

Visit Earnest

1.85% – 11.35%4 Undergraduate

Visit Ascent

2.20% – 6.17%5 Undergraduate

Visit EdvestinU

1.12% – 11.23%6 Undergraduate

Visit SoFi