It’s no secret that student loan debt is a problem, not only for those who bear their burden but for society as a whole. In 2019, the amount of student loan debt in the United States was estimated at $1.4 trillion.
Income Share Agreements (ISA) have entered the market as an alternative to private student loans. Under an ISA contract, you are provided with a deferred tuition option to cover costs in exchange for a promise to pay a percentage of your income after you’ve graduated.
Although Income Share Agreements aren’t for everyone, they do have many benefits that can prove helpful for both students and schools. Here are some of the benefits of having an ISA program. First, let’s take a look at the benefits they have for schools and skills-training programs.
1. Increased accessibility for students
Income Share Agreements are great for those who want to attend classes but may not have the means to, or may not want to take out a private loan to access college.
Colleges, Universities, and bootcamps alike are using ISAs to add more options to increase accessibility for students. Institutions implementing ISAs typically use them to fill funding gaps for students who have exhausted their federal financial aid options, or who may be debt averse.
Income Share Agreements also assist those who cannot access federal financial aid, especially anyone attending alternative education, like coding bootcamps. Students interested in bootcamps or alternative skill-training programs can’t access federal financial aid since these programs are currently ineligible for Title IV funding.
David Barnett, executive vice president and CFO at Bernau speaks on the benefits of ISAs at the university:
“With ISAs, Brenau students will have the freedom to pursue their academic interests; they just won’t have to worry about un-affordable loan repayment or the other strains that come with traditional student loan debt.”
2. Increased Enrollment
Related to point number one, another advantage of offering an ISA as one of your financing options is that it fills empty seats that a school might otherwise not be able to fill through traditional educational financing. Because ISAs offer another financing option to students, some students who may not have otherwise considered attending due to the need to take out a private loan now have access to higher education. The built in protections ISAs provide may also sway students who may have been on the fence about attending. Because Income Share Agreements increase accessibility to students, colleges are able to increase enrollment and fill empty seats.
Individuals interested in higher education may at times decide not to enroll due to uncertainty about the return on their investment in a student loan. Loan aversion can cause students to delay enrollment in higher education. With an Income Share Agreement, schools can offer an alternative financing option to those who may be hesitant to take out a loan.
3. Aligned Risk Between Schools and Students
With many student loans, the student takes on almost all the risk of the debt. With an ISA schools are able to confidently signal to students that the skills the student will learn through their program will allow them to find a job in their field, or gain enough skills to find another suitable position. This also adds to the schools credibility and shows they are willing to share the risks and rewards with the student.
Right now, students bear all the burden of student loans. If students drop out or receive an education that does not prepare them for the workforce, the student is responsible for payments regardless of their job situation. ISAs change that model and allow students and schools to better share in the risks and rewards of educational financing. With ISAs, colleges will want to offer programs that are tailored to the needs of the modern-day workforce. This benefits both the student and the school. The student will be prepared for a great job, and the school will benefit because if the student succeeds then their ISA program succeeds.
Income Share Agreements also benefit students in multiple different ways:
1. Deferred Tuition
Although ISA contract terms vary, most Income Share Agreements allow you to go through the program without worrying about paying for it until you have an income post- graduation. This helps students to focus on school and getting the education they need without having to make payments while studying or needing to have a large amount of money saved up before beginning their first semester. With an ISA you’ll only start making payments after you graduate and once you get a job, and you usually do not owe anything until you earn over a certain amount. This means that you will only pay if your education leads to success in the job market.
2. Consumer Benefits
Unlike with a private student loan, you won’t have a fixed payment hanging over your head with an Income Share Agreement. Because an ISA is linked to your pretax, monthly income by a percentage, if your first job after college earns you less than the minimum income threshold, you won’t have to worry about making payments.
This is because ISAs typically have something called a Minimum Income Threshold that you have to meet before payments start. If your income ever drops below that point, your payments are paused until you are earning above that threshold. Your payments aren’t due if you lose your job, after all you can’t owe a percentage of your income if you have no income. This additional flexibility is a great benefit of Income Share Agreements.
ISAs also have a maximum payment cap which limits your total financial commitment. The max payment cap is the absolute maximum payment you could pay towards your ISA obligation. Your total payments will never exceed this cap and if you do reach the cap on your payments, your ISA obligations are done!
As described above, the consumer benefits included with an Income Share Agreement are there to assist students during their repayment period and help to remove compounding interest that seems to never disappear.
3. Off-sets Risk for Students
ISAs off set risks for students because they have the potential to protect students from paying for educational experiences that don’t create value for them in the labor market. Income Share Agreements help to shift the risk of poor workforce outcomes away from students, and to produce better outcomes by helping to balance out the risks associated with educational financing. In the future, ISAs can potentially help change how education providers keep their curriculum relevant and up to date with the current workforce, so students can enter the workforce effectively.
Our private student loan system needs to be fixed. Income Share Agreements offer students an alternative to private student loans creating compounding debt for them. Schools and students are beginning to see the benefits of Income Share Agreements. Are you a school or skills-training program looking to offer your own ISA program? Book a meeting with a member of the Meratas Partner Team today! Are you a student looking to level up your career with an ISA? Check out our student page to find the best program for you!