An income share agreement (ISA) is a financial agreement between a student and a school or investor in which the student agrees to pay a percentage of their future earnings in exchange for funding their education.
The concept of ISAs has gained popularity in recent years, as traditional student loans have become more burdensome for many students. Unlike loans, ISAs do not charge interest, and payments are only required if the student earns above a certain threshold.
Here’s how an income share agreement works:
1. A student applies for an ISA.
The student applies for an ISA with a school or investor, often through an online application. The student’s application is assessed based on their academic record, financial need, and potential for future earnings.
2. The school or investor offers funding.
If the student is approved for an ISA, the school or investor offers funding to cover some or all of the student’s education costs. The amount of funding offered depends on the student’s individual circumstances and earning potential.
3. The student agrees to pay a percentage of their future earnings.
In exchange for the funding, the student agrees to pay a percentage of their future earnings for a set period of time. This percentage is often between 2% and 20% of the student’s earnings, and the payment period can range from a few years to several decades.
4. Payments are only required if the student earns above a certain threshold.
One of the benefits of an ISA is that payments are only required if the student earns above a certain threshold. This threshold is typically set at a level that allows the student to cover their basic living expenses while also paying back their ISA.
5. The ISA may have a cap on the total amount paid.
Some ISAs have a cap on the total amount paid, meaning that once the student has paid a certain amount, they are no longer required to make payments. This cap can be set at a multiple of the initial funding amount, or a certain percentage of the student’s earnings over a certain period of time.
6. The ISA may include additional terms and conditions.
ISAs can be complex financial agreements, and may include additional terms and conditions such as early repayment options, deferment periods, and clauses related to job loss or career changes.
In conclusion, an income share agreement is a financial agreement that allows students to fund their education without taking on traditional student loans. While ISAs have some potential drawbacks, such as a lack of transparency and regulatory oversight, they can be a valuable option for students who are willing to trade a portion of their future earnings for upfront funding.