Income Share Agreements (ISAs) have what you could call "consumer benefits" built-in to help students through tough times. Besides the absence of growing interest and generally, no upfront payments, a significant benefit of Income Share Agreements is the fact that there are certain instances when your payments are paused or deferred.
The cost of higher education isn't cheap. Unlike private student loans, there's no worry if you'll afford your payments, because they're based on a fixed percentage of your gross income. Your monthly ISA payments are only due when you're employed, earning a certain livable salary. Here are some potential situations that your Income Share Agreement would be paused in.
If You Earn Less Than a Certain Amount, Your Payments are Paused
If your earned income is lower than the Minimum Income Threshold, you aren't obligated to make ISA payments.
Let's say that after graduating you aren't able to get a job at an accounting firm like you were planning. To make ends meet, you find a job at Starbucks. Your yearly income is $20,000, and since you used an ISA to pay for college, you don't have to make payments. Part of an ISA's terms is something called a payment floor or Minimum Income Threshold to protect students who aren't able to get a great paying job to support themselves after graduation.
Before you make payments, you have to be earning more than the payment floor, which in this example is $30,000. This gives you some time and space to find a better job before you begin to make payments. For any month where you make less than the Minimum Income Threshold under most ISA contracts, you pay nothing until you are earning above that threshold once again.
If You're Unemployed, Your Payments are Paused
Life can throw curveballs at you. ISAs have flexible payment schedules in that you aren't required to make payments during certain life conditions, including unemployment or family leave. That's why you only make repayments on your ISA when you're earning, so payments are automatically deferred if you lose your job. It's understandable that life happens, so if you need to voluntarily leave the work-force, your ISA program will be paused without penalty and not be in payment status. During this time there will be no interest accrual (unlike a traditional loan), and your payments will restart once you've gotten back on your feet.
A Few Other Situations Where Your Payments are Paused:
The exact terms of your Income share agreement contract will vary, but it's possible to receive a deferment on your ISA obligation in three other situations:
Returning to school: Learning new skills and continuing your education is key to being prepared for a career transition. If you decide to further your education after graduation, whether it be grad school, or you decide to go back to school to pursue another degree, etc. your ISA payments are also deferred while you're enrolled. If you decide to transfer schools after taking out an ISA at your first campus, your monthly payments will be in deferment period while you're learning new skills!
Volunteer or military service: If you're currently serving in the military, your monthly payments aren't going to be a burden. While in active duty, there should be no worry about paying back your Income Share Agreement. If you're volunteering and currently not making much this is, of course, a great reason for having your monthly payments in deferment.
Medical leave: With an ISA provider you can have peace of mind because if anything were to happen your ISA will be in a grace period. You're able to focus on what's important while you're recovering before you begin making payments again. If something happened and you're physically not able to return to work, your ISA payments will be deferred.
Payments Have an End Date
Another great part of ISAs is that your repayment term won't drag on forever. Whereas some traditional student loan borrowers are in repayment for as long as 20 to 25 years, repaying tens of thousands of dollars more than they originally received in interest, ISAs have a set term-time called the Payment Window. This, again, varies from ISA to ISA and program to program but can generally be anywhere from 24 to 96 months.
Although an Income Share Agreement may not be right for everyone, they can be a great alternative to private student loans. Of course, your payments are based on your contract, and vary from person to person, if you'd like more details you can check out this ISA calculator. If you're considering using an ISA to pay for your education, you can check out these Meratas-partnered programs which all offer ISAs as an option to their program financing.