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Learn more about Income Share Agreements (ISA), and how this might fit into your financial goals.

OUR FREQUENTLY ASKED QUESTIONS

1. What is an Income Share Agreement (ISA)?

An Income Share Agreement (ISA) is a form of financial instrument, which provides students with educational funding in exchange for a small percentage of the student’s future earnings, over a set period of time following graduation.

An ISA is not a loan, and does not create any debt.  Instead, it offers a much more flexible and safer method to finance your education related expenses as compared to private educational lenders.

Because the amount paid back with an ISA is based on your future income, payments adjust to your ability to pay, and should always be manageable.  Since payments are measured against your actual earnings, with an ISA, it is ok if the amount you ultimately pay back is less than the amount you receive.

2. Why haven’t I heard of ISAs before?

The original idea behind Income Share Agreements (ISAs) are credited to Milton Friedman, an economist, who received the 1976 Nobel Prize in Economics.  

In his original 1955 essay, Friedman highlighted a market failure in the financing of higher education, and argued that education should be financed more like “equity” instead of through “debt”.  Rather than fixing loan payments at a set amount every month (as with debt), the amount a student-borrower would repay his/her funder, should be more like equity, and tied to the student’s future career success.  This is how equity investors of public corporations are paid. 

An ISA funder is like a shareholder of the student, and since the funder’s investment return is correlated with the student’s success, Merit Financing has the ability to align incentives between funder and recipient in ways that traditional private lending cannot.  Indeed, leading ISA funders will provide their recipients with career mentoring and job placement advice, which is not typical in the private loan market.

3. How do ISAs differ from traditional loans?

With traditional private loans, student-borrowers must pay back the principal amount and accrued interest, irrespective of their future income or employment circumstances.  Under a loan, failure to pay back accrued interest can lead to ‘negative amortization’, which means your principal loan balance increases over time despite making minimum payments.  Negative amortization also occurs during loan deferment (a hidden cost most loan-borrowers do not appreciate), so the principal loan amount owed is growing during deferment… leaving the borrower off in a much worse position than before.  

With an Income Share Agreement, there is absolutely no risk of negative amortization. An ISA carries no interest, and has no principal balance that must be repaid.  Accordingly, there is absolutely no risk of negative amortization. Instead, the student agrees to pay-back a small, fixed, percentage of his/her future income in exchange for financing to be applied towards the student’s education or education related expenses.  With an ISA, the amount ultimately repaid may be more or less than the amount received.

4. Do I need a Co-Signer?

No! Our investment is in you.  Many of our customers are first generation students who have surpassed the educational attainment of their parents.  We believe that your access to higher education should not be based on your parents’ respective educational attainment.

5. Am I eligible for an ISA?

To be eligible for an ISA, you must be a U.S. citizen or permanent resident, over 18 years of age. 

While your credit score is not a priority, certain merit-based indicators may overlap with items also included in your credit file, such as: recent garnishments, lien attachments, judgments or tax liens, bankruptcy, or unsatisfied suits or judgments.

If you believe you are a good candidate for an ISA, we encourage you to apply.  We are constantly partnering with new programs, and if we do not currently offer an ISA for your specific degree/career, we may do so in the near future.

6. Are ISAs based on "merit" or "credit"?

Most traditional lenders care only on your credit score.  Each school offering an ISA through Meratas has made a commitment to look past backwards metrics and instead, place the emphasis on your future potential

We call this your merit score, and we do this by examining your academic, military and work achievements to ascertain your eligibility.

We know you are more than your credit score and we believe your past achievements are an important indicator of your future potential. That’s why we review your experience in school, academic record, the intended career you are pursuing, previous jobs and even the military to improve your merit profile.

If you believe you are a good candidate for an ISA, we encourage you to apply.  We are constantly partnering with new programs, and even if we do not currently offer an ISA for your specific degree/career, we may do so in the near future.

7. What makes ISAs safer than private loans?

Traditional private loans contain a principal balance plus interest, both of which must be repaid irrespective of your life circumstances. 

Since an Income Share Agreement (ISA) represents our investment in your future success, we assume the risk that the amount you pay us back may ultimately be less than the amount we funded you.  Moreover, with Automatic Deferment, your payments will halt during periods of unemployment, under-employment, or if you are unable to work due to serious illness. 

With an ISA, it is like having built-in insurance protection for your educational financing.  These built in protections come standard, and are a key feature which makes Income Share Agreements safer than private loans and one of the most flexible financing alternatives available.

8. What makes ISAs more flexible than private loans?

Private student loans (debt) creates substantial risks to students if they cannot afford their payments after graduation, whereas ISA payments are specifically designed to adjust with to your post-graduate level of income.

All ISA programs contain a minimum income threshold (i.e., the “floor”) and a maximum payment cap (i.e., the “ceiling”), so students are protected in both low income and high-income circumstances.  With an ISA, you will not pay anything whenever you are earning less than your floor, and if you are gainfully employed, you will never pay more than your pre-set ceiling.

With an ISA, it is like having built-in insurance protection for your educational financing.  These built in protections come standard, and are a key feature which makes ISAs safer than private loans and one of the most flexible financing alternatives available.

9. What do you mean by built-in protection?

Unlike traditional private loans which must be repaid irrespective of your circumstances, with an Income Share Agreement (ISA), you are not required to make monthly payments during periods of unemployment, serious illness, or if you are earning less than expected based on your degree/career.  This includes periods of:

  • Illness: if you suffer a qualified medical disability which prevents you from working;
  • Under-employment: if you are employed either full-time or part-time and earning less than expected based on your degree and career projections;
  • Unemployment: if you are involuntarily unemployed (i.e., you lose your job at no fault of your own).
  • Voluntary workforce removal: Certain situations of voluntary unemployment (i.e., taking time off to travel, go back to school, or start a family) also qualify for Automatic Deferment, however these situations may extend your contract term.
We call this Automatic Deferment, and importantly, this will never lead to negative amortization.

10. How much can I apply for?

Meratas partners with schools and skills training courses to help administer their ISA programs. 

While each of our partner institutions offer their own ISA programs, depending on your chosen degree and intended career, ISAs are typically awarded in amounts ranging from $5,000 to $30,000.  

11. If approved, how will I receive the funds?

If approved for an ISA, your funds will either be (i) transferred directly into your designated bank account (for personal stipend ISAs) or (ii) credited to the schools cost of tuition (for school tuition ISAs).

Funding decisions can be made as quickly as  within one business day once all documents are returned and your contract is approved.

12. Will applying for an ISA impact my credit score?

Completing our online application utilizes what is called a "soft-pull", which will not impact your credit score.

While your credit score is not a priority, certain merit indicators may overlap with items also included in your credit score, such as: recent garnishments, lien attachments, judgments or tax liens, bankruptcy, or unsatisfied suits or judgments.

13. How will my ISA payments be calculated?

Following program completion (and your applicable grace period), your monthly payments will be indexed to a specified percentage (typically from 5% - 17%) of your pre-tax earnings for the prescribed contract term.  After making ordinary payments over the designated contract term, no additional payments are required even if the amount ultimately repaid is less than the amount credited to you.

Since your monthly payments are calculated as a fixed percentage of your earned income, if you become unemployed, face unexpected salary shocks or other work-related financial hardships, your payments will be commensurately lowered, or waived entirely.  We call this Automatic Deferment, but you can call it peace of mind.

 

14. When do I begin repaying my ISA?

Typical private lenders use a grace period because their loans must be repaid irrespective of your circumstances.  With an ISA, however, you will only pay it back if and when you are gainfully employed and earning above an income 'floor' based on your degree or career.

With an Income Share Agreement, your repayments will start only once you are gainfully employed, and earning more than a base amount.   So, if it takes you longer than expected to find a job, there is no interest accumulation, and you have no risk of negative amortization.

15. Will the amount I have to pay back under my ISA grow through interest accrual or in the event of deferment?

No. One of the ways that ISAs differ from traditional loans is that there is no interest accrual, and no principal balance that must be repaid.

During periods of involuntary unemployment, your ISA will be placed in Automatic Deferment, meaning your payments will be paused.  During this time, the contract term will continue to run, so if you remain in Automatic Deferment for the length of your contract, you contract may ultimately terminate even if you pay back less than the amount you received.

This is one of the material benefits of an ISA when compared against private loans.

16. May I repay my ISA early?

Yes! With an ISA, you have the flexibility to keep the contract for the full term and benefit from the built-in protections against unemployment, or you may terminate early and take advantage of any early payment incentives your school may provide.  The choice is entirely yours.

Moreover, all regular monthly payments made prior to electing Early Termination are counted towards your early termination payment.

17. Are there any pre-payment penalties?

No!  With an ISA, there is no penalty should you chose to payoff your ISA early.

To end your ISA contract, all you have to do is pay the "payment cap" that is set forth in your agreement.  In fact, many of the programs offering ISAs through Meratas provide incremental payment caps which reward you by making it less costly when you terminate your ISA early (compared to keeping it for the full term)

18. Do you provide automatic payment discounts?

Yes!  Most schools offering ISAs through Meratas provide a 1.00% discount for students who chose to enroll in autopay.