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Income-share agreements (ISAs) are increasingly seen as a possible supplement to — and sometimes even a replacement for — student loans. And more on more, it’s becoming easier to sign up for one.
Stride Funding is part of a growing list of companies that provide ISAs directly to students (rather than via schools), joining the likes of Align, Blair, Defynance, Lumni, and Nuntiux, among others. Under these ISAs, borrowers receive tuition funding in exchange for agreeing to pay a percentage of their income in the future for a given period of time.
To get a closer look at ISAs — and Stride’s offerings in particular — we spoke with the company’s chief executive and asked questions such as…
1. Which students are most likely to benefit from ISAs?
2. Are ISAs becoming better known?
3. Will more schools — or even the government — will begin offering ISAs directly?
4. How would the increased borrowing of ISAs affect the student debt crisis?
5. How should college and graduate students prioritize ISAs?
Meet Stride Funding and its ISAs
Stride Funding stands out by catering to graduate students, focusing primarily on healthcare, STEM and business degree-seekers. Its ISAs are an alternative to Grad PLUS Loans from the federal government, which are borrowed at one-size-fits-all interest rates higher than those for undergrad loans. Depending on the situation, they could also be a better deal than private student loans, which only award their lowest rates to the most creditworthy borrowers.
“Stride underwrites its ISAs based on future potential, not past performance or credit scores,” Stride CEO Tess Michaels told Student Loan Hero. “The more information we have on a student’s potential — as indicated by their program, grades, test scores and career aspirations — the better we are able to lower the rates.”
Like its competitors, Stride also attempts to stand out from traditional student loan lenders by offering additional services. Michaels calls her outfit the “most student-centric player” for its guidance around career pathing, resume writing and finding a job.
ISAs are still unfamiliar to many students, however. If your school doesn’t have an income-share agreement, for example, you might not have even heard of it.
Because they’re a relatively new financing instrument, ISAs so far lack the same government regulation that safeguards student loans. Just like loans, though, ISAs have pros and cons, and some lawmakers have expressed concern about them. So while some succeed by using income-share agreements, others may well struggle.
Seeking more context, we asked Michaels about Stride and about ISAs in general. Here are some highlights from the interview, along with related posts that can fill in some of the details.
Michaels: “We typically find that students who would like more flexibility in their career are most interested in ISAs. They’re also a great option for students with an aversion to debt or significant other fixed expenses, such as child care. These agreements have a shorter duration and are more flexible, so students know they’ll never pay more than they can afford.”
Michaels: “Yes, we see strong market tailwinds as awareness around ISAs steadily increases, given the recent media attention and the rise of students looking for more flexible, affordable options. We also expect financial literacy to grow, and students to view ISAs as a favorable alternative to traditional loans.”
3. Do you forecast that more schools — or even the Department of Education — will begin offering ISAs directly to students?
Michaels: “Yes, we believe the ISA movement is growing quickly and gaining mindshare across the nation. The success of such programs in other countries like Australia is making universities and the [Department of Education] rethink their current ways of financing.
“We are excited to be an early player, helping shape the industry and ensure good practices that have the student’s best interest driving strategic decisions.”
Michaels: “We’re seeing staggering default rates in the U.S. as one of the results of the rigidity of traditional loan products, compared to flexible ISAs.
“As the uptick of income-share agreements increases, we’ll see more students who are able to better budget their spending, plan for their future personal and professional lives and manage unexpected challenges that come their way. This is possible because ISAs function as more of a partner product.
“We expect that the coupling of an inherently more flexible financial product with career support improves the outcomes for students and enables debt relief. That is why we see a shift of both private products — such as Stride — and government forces backing income-share agreements as a new vehicle to tackle the student debt crisis.”
Michaels: “We want to be radically transparent with students — always. If there are scholarships, grants, or subsidized federal loans that students have access to, those should almost always be their first choice. However, we often find that most students still have some residual need.
“When students are considering private loans and unsubsidized federal loans such as Grad PLUS, ISAs can be a more affordable, more flexible option.”