As more students are concerned about how they will afford traditional loan repayments, schools and programs are beginning to think of different ways to finance the cost of tuition. Income Share Agreements can be a great alternative for students.
An Income Share Agreement (ISA) offers funding for students who then repay based on their future salary. Although each Income Share Agreement works differently, in general, the student will start repaying an ISA after he leaves school and passes a specific income threshold. If he loses his job, he stops making payments.
“The beauty of Income Share Agreements is that students don’t leave with a debt that is accruing interest even as they struggle to pay it back,” the WSJ stated. “If they don’t find a job, the program gets no money back. This alone is an improvement over the traditional student loan because it aligns the students’ interests with those of their universities.”
Startups are beginning to propose Income Share Agreements as a solution to a variety of problems, including education. When someone signs an ISA, they commit to paying a percentage of their future income in exchange for funding. That may not sound radically different from a student loan, but advocates argue that ISAs align the interests of both parties in a more constructive way.
After all, if you invest in the future of a student, you are incentivized to further their career as a means of maximizing your return. And if a graduate is in between jobs, or chooses to pursue a less lucrative career, they aren’t burdened with crippling debt.
“Over the last several years, we've certainly seen a resurgence and the interest in using income-share agreements to finance higher education, and potentially for other uses as well,” Joanna Darcus, a staff attorney at the National Consumer Law Center, told Yahoo Finance. “And that the interest is primarily driven by financial companies, FinTech platforms, venture capitalists, and some institutions who are interested in exploring the model.”
Most ISAs are run by colleges or bootcamps for their own students, sometimes with private capital sources. But there are some private lenders you can get Income Share Agreements from as well. Here are some Income Share Agreement Startups that are changing the way we fund education.
One Income Share Agreement startup that is helping students today is Defynance.
Their founder, Farrukh Siddiqui, is passionate about ending the tragedy of student loan debt. With Defynance students can apply to refinance their student loans with their revolutionary debt-free solution. Defynance will pay off the student’s debt in full and in exchange the student shares a percentage of their income for a set period of time.
Defynance does not have a minimum required credit score to apply for the ISA refinancing program. Instead, they use Pricing and Risk Algorithm for Income Sharing (PRAIS) to determine the student’s potential. While credit score is a factor, they use forward-looking indicators that predict future earning potential, instead of just backward-looking indicators such as a credit score. Whether you’re struggling or excelling in your career, the Defynance ISA promises to always protect you with a built in minimum income threshold to pause your payments when your income lowers, and a max payment cap on how much you could potentially owe back. A Defynance ISA could be a useful financing method for anyone as an alternative to loans. If you are a student looking for a better financing method with built-in downside protections, an ISA is right for you.
Outcome specializes in education financing with Income Share Agreements. Outcome’s platform integrates program design, capital structuring, and program implementation.
Outcome works directly with investors to facilitate program-specific investments or to build a portfolio of ISA programs.
Outcome’s ISA Program Management service identifies high-impact education providers, evaluates ISA program design, and supervises ongoing program servicing and financial management. Outcome has built a student-centric origination platform to handle ISA applications and student onboarding, as well as all regulatory and legal disclosures. Outcome’s ISA startup model allows them to keep students at the center of the equation.
Meratas provides a full-service SaaS Platform for Schools and Skills-Training Courses to originate, administer, and service custom ISA programs. Meratas uses ISAs to increase student accessibility and democratize access to education.
Prior to founding Meratas, Darius Goldman was a partner and head of the Distressed Debt & Claims Trading legal practice group, at the international law firm Katten Muchin Rosenman LLP, where Darius provided legal guidance surrounding investments in esoteric assets such as Income Share Agreements. During his legal tenure, Darius was one of the earliest professionals to specialize in ISAs, helping his clients identify risks and capitalize on opportunities involving ISA investments.
Through these endeavors, he realized an outstanding need for better tools to manage ISA programs in scale. Schools were running their ISA programs using spreadsheets and no one else was offering a better solution. The ISA space needed a robust piece of software to manage ISA programs and options for data organization and storage.
That’s why he started Meratas, to provide a better ISA solution to schools and skills training programs, and to help bring the power of Income Share Agreements to those who need it.
From student applications through portfolio management, Meratas’ full-service software makes it easy to run your own ISA program. Meratas programs are intended to incentivize students, schools, and capital providers to work together to promote and finance only the best educational programs that lead to more successful careers.
The American student loan system has long needed a solution and these Income Share Agreement startups are helping to provide just that. If you’re a student, remember to do your research on your specific ISA terms. How much you'll pay overall will depend on your specific ISA's terms. Interested in starting your own ISA program? Check out this blog post on how to design a great Income share agreement program, or contact one of our ISA specialists here!
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