What if you could borrow money for school without having to cover interest? And what if you could repay the principal automatically and within as little as five years after graduating?
After considering those benefits, you might have a question of your own: Where can I sign up for an Income-Share Agreement (ISA)?
Unfortunately, as helpful as ISAs are for some students, they’re an unwise solution for many others.
What is an Income-Share Agreement?
Stepping in where the federal student aid system and private lenders stop short, companies like Lumni and Align offer students a whole new bargain: funding for higher education in exchange for a percentage of your income if and once you land a job.
In some cases, ISAs are available directly from your school, which might partner with an outfit like Vemo to administer the dollars and cents. Purdue University in Indiana, for example, has paid out about $9.5 million to almost 800 students via its Back a Boiler ISA fund.
As students look to skirt student loan debt, ISAs are becoming increasingly common. For some, they’re a no-brainer. An ISA, for example, could help you reach your cost of attendance if you’ve hit federal borrowing limits or are attending a school that’s ineligible for federal or private student loans.
Plus, if you don’t find the salaried job you were hoping to snag upon graduation, many ISA agreements won’t call for you to make payments (much like income-driven repayment plans on federal loans). After all, there wouldn’t be a paycheck to partition.
Which professions are perfect for income-share agreements (and which aren’t)
Aside from the fact that your major affects your college cost, it also leads to your career — and not all careers are suited for ISAs.
1. Good fit for ISA: Web developer
Many coding schools and boot camps offer ISAs in exchange for more narrow training. Most recently, Make School claimed to become the first venture-backed school to offer an accredited bachelor’s degree in applied computer science. Accredited or not, however, these startup-style schools typically aren’t eligible for federal or private student loans.
When comparing these programs and their tuition, it’s imperative also to examine their ISA agreements.
At General Assembly, for example, you’d be expected to fork over 10% of your $40,000-or-greater salary for five years. App Academy, meanwhile, calls for alumni earning $50,000 or more to repay only 28% of their first year’s salary and nothing more.
2. Bad fit for ISA: Government or nonprofit employee
If you plan on working full time in public service when you’re done with school — but need to borrow in the meantime — you’re probably better off with federal student loans.
A big reason to avoid ISAs in this case is the potential to have your student loans forgiven under Public Service Loan Forgiveness (PSLF). After 10 years of working for an eligible employer and making prompt payments on an income-driven repayment plan, the remainder of your debt would be wiped away.
And while there are questions surrounding the future of PSLF, other programs exist that could help you with student loan repayment. Yet, by signing an ISA agreement, you’d lose out on any chance of forgiveness.
3. Good fit for ISA: Artist
Working as a so-called starving artist could be a better use of this atypical tuition arrangement. After all, fine arts is among the majors leading to the lowest-paying careers, with working artists earning a median salary of $49,520, according to the Bureau of Labor Statistics (BLS).
Other trade school careers may also be good matches for ISAs for another reason: Your school or program might not be eligible for federal or private student loans.
If you’re into art but are not so keen on math, be careful to check whether any ISA you sign will benefit you. A private company might offer you worse terms (such as a higher percentage of your future income or a longer repayment term) because of your perceived career path.
4. Bad fit for ISA: Teacher
Much like government and nonprofit workers, teachers aren’t best suited to using an ISA. Although teachers are often on the lower end of the wage scale, there are a wide variety of options for educators to receive loan forgiveness or at least repayment assistance.
Beyond PSLF, you could obtain additional federal loan forgiveness via the government’s teacher loan forgiveness program. It can get up to $17,500 of your debt canceled after you work for five academic years at a low-income school or eligible education service agency. Consult a directory of eligible employers if you’re already eyeing the location of your future classroom.
5. Bad fit for ISA: Doctor
Although ISAs might be practical solutions for low-income earners, they’re not as cost-efficient for medical professionals. As a doctor, for example, you’d be paying out a percentage of what will likely be a six-digit income.
Some ISA agreements include caps on your repayment amount. If you were a pre-med student at Purdue, for example, and ended up being paid handsomely as a cardiologist, you wouldn’t have to pay more than two and a half times what you initially borrowed.
Still, an ISA could be a bad deal, at least compared with traditional forms of borrowing.
Say you’re a physician or surgeon who’s just starting out, taking home $60,390 (the 10th percentile salary among your peers, according to the BLS). If you received $12,500 and agreed to repay 10% of your income over five years via an ISA, you’d shell out $30,195.
Now say that you instead borrowed $12,500 in the form of a loan and agreed to repay it — plus 6.00% interest — over 10 years. Under these circumstances, the loan would cost you just $16,653 over the next decade, according to our student loan monthly payment calculator. (You could also prepay the debt, saving even more money.)
Also, like public servants and teachers, medical professionals typically have more access to loan forgiveness programs and loan repayment assistance programs. The majority of states offer thousands of dollars in assistance, for example, if you’re a physician working in an underserved area.
To ISA or not to ISA? How to pay for school the smart way
An ISA is another tool to consider as you pursue higher education. Although it might sound great on the surface, however, it’s not the right path for every student.
Run the numbers to ensure your projected salary won’t leave you paying more under an ISA than you would have paid to borrow federal and private student loans. Ensure too that you’re OK giving up some forgiveness and assistance options that you would have gotten with federal loans.
On other other hand, an ISA could be a great solution if your school isn’t eligible for federal loans or doesn’t work with reputable private lenders.
And if you’re still not sure which way to go, consult our handy guide to paying for college.
Need a student loan?Here are our top student loan lenders of 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 4/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.24% – 13.24%1||Undergraduate and Graduate|
|4.07% – 11.32%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.50% – 11.35%*,4||Undergraduate and Graduate|
|4.25% – 13.25%5||Undergraduate and Graduate|
|6.08% – 7.22%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.42%8||Undergraduate, Graduate, and Parents|