College still provides a strong return on investment for many students. But the risk profile of that investment has gone up dramatically with the cost of college in recent years. But we are starting to see a growing number of colleges and universities stepping up to share some of the risks and rewards with their students.
Income Share Agreements (ISAs) are emerging as an excellent alternative to student loans. With this type of agreement, students pay nothing, in most cases, until after they complete their program. Then, once a student has finished the program and becomes successfully employed using their new skills, they pay a percentage of their income for a set period of time until they have either reached the Required Payments, Max Payment Cap, or Payment Window.
ISAs have student benefits built-in to help students through tough times that are often absent from traditional private student loans. 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. If the student is making less than a certain amount (the Minimum Income Floor) they don’t have to make payments.
ISAs are a win-win scenario for everyone involved. By offering an option to students to pay for tuition through an ISA, providers can offer education to students, no matter their financial background, and benefit by increasing the range of students they are able to serve. Students benefit by gaining career skills without having to make a large initial investment.
Income Share Agreements help students so they generally don’t have to pay anything until after they’re graduated and earning over a set income.
Let’s take a look at the student benefits Meratas offers to all of its partners as options to offer to their students on their platform.
The Income Share Percentage Discount
The Income Share Percentage is the fixed percentage of your monthly pre-tax income that you agree to share during your contract term. Income shares can range from 2.5% to as high as 17.5%.
The Income Share Percentage discount with Meratas allows schools to offer students various discounts on their ISA payment percentage for completing milestones or doing certain things such as enrolling in auto payments for their ISA, taking online classes, etc. It’s up to the partner program on what they want to offer. If a student does one of these things, they receive a certain percentage discount off their ISA.
For example, if you would like to incentivize your students to enroll in auto payments for their ISA, you can set up an ISA percentage discount. So, if a student has a 10% ISA but gets a 1% discount if they enroll in auto-pay, they now only need to share 9% of their income instead of 10%.
The Cap Paydown
The Cap Paydown is a feature for higher-earning students to pay off their ISA as quickly as possible. The cap paydown is a feature of our ISA design that Meratas makes available to all our partners as an option to offer to their students.
This gives students who have an income while they are in their program the chance to potentially lower the overall cost of their ISA significantly over the course of the contract.
Essentially, the Cap Paydown allows students to make smaller, fixed payments (usually a few hundred dollars) each month while they are still in their education program. These payments continue until they find a qualifying job and are making above the Minimum Income Threshold outlined in their ISA, at which point they then switch over to making their ISA payments.
In exchange for making these payments while in their program, students receive a discount on their Max Payment Cap of either the total amount of the initial payments made or a flat amount.
For example, let’s say your Max Payment Cap would be $15,000 in your ISA. But if your program offered a Cap Paydown and you started making $300 monthly payments during the program, your payment could potentially be lowered by $3,000 to $12,00 depending on the terms of your program’s Cap Paydown.
This feature is especially important for students who are confident they’ll be able to get a well-paying job after graduation and know they’ll reach the Payment Cap before their Required Payments or Payment Window are up.
The Incremental Payment Cap
The Maximum Payment Cap limits the maximum amount of income a high-earning student is required to share. Incremental Payment Caps give students even more options and benefits in paying off their ISA. Incremental Payment Caps are designed to reward students by providing an incrementally lower payment cap year over year for students to pay off their ISA at lower cap rather than letting the contract go full-term.
For example, if you sign an ISA to borrow $8,000 let’s say your Max Payment Cap is equal to $15,000. This is the normal payment cap, the most you would ever pay towards your ISA. But with an incremental payment cap, the payment cap would be lower in the first year and incrementally increase to the full cap over the course of four years.
Let's say that your payment cap for year one was also $8,000. That means, that if you made extra payments towards your ISA or earned enough to pay $8,000 towards your ISA in the first year, you would pay nothing more than the tuition amount! Can't pay that $8,000 in the first year but still want to take advantage of the incremental payment cap? In this example, let's say that the payment cap for year two is $10,000. This means if your total ISA payments reach $10,000 in those first two years, your ISA is still considered satisfied even if you haven't reached the total payment cap of $15,000 or made all of the required payments.
The Incremental Payment Cap gives students incentive to pay off their ISA quicker instead of holding off on paying it down. The incremental payment cap will continue to get bigger over 4 years until it reaches the overall payment cap of $15,000.
In order to defer student loans, you must meet specific eligibility criteria and have deferment time available. Student loan deferment can pause your monthly loan payments, often for a maximum of three years. But, interest will continue to accrue and make it more difficult to complete paying off your student loan in the long run.
But with your ISA, you can defer paying back the percentage of your income due to:
- Earning less than your Minimum Income Threshold. (The Minimum Income Threshold is a certain amount of your income that you have to earn over in order to make payments.)
- Medical leave
- And possibly other extenuating circumstances that impact your monthly income
Read the full list of when your payments are deferred.
In order to defer your payments with Meratas, you will need to submit your latest pay stub or termination letter along with a quick one-page form to fill out, which can take as little as three minutes to complete.
Then, for every month where you meet the deferment requirements, your payments will continue to be deferred until you start a new job, start earning more, finish school, or recover!
Meratas is the only ISA platform that offers these unique student benefits as an option to partners on our platform and is one of the many benefits of working with Meratas for all of your ISA needs. Ready to offer an Income Share Agreement program at your school or educational institution designed to increase student enrollment and accessibility?
Meratas is the leading Income Share Agreement (ISA) software company, providing a full-service, turnkey, SaaS platform to design, originate, and manage ISAs. We help universities, bootcamps, trade schools, and membership programs increase enrollment and open access to their programs. All through the power of Income Share Agreements.
We also help those looking to get an education, up-skill, or re-skill, get into the career of their dreams. All at generally no upfront cost. We pair individuals looking for a fresh new career with the best educational programs on the Meratas platform to reach their professional goals. If you're looking to break into your new career, check out our student page and we'll help you find the career of your dreams.
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Although every effort has been made to provide complete and accurate information, Meratas Inc. makes no warranties, express or implied, or representations as to the accuracy of content contained herein. Meratas Inc. assumes no liability or responsibility for any error or omissions in the information contained herein or the operation or use of these materials.
Topics: income share agreements