Income Share Agreement: What It Is and How It Works
Getting any kind of education usually means that you’ll need to invest a lot of time, effort, and of course, money in it. If the only thing holding you back from starting your education is money then you should look closer into the funding method called Income Share Agreement or ISA, for short. Lately, more and more schools and colleges are offering this to their students, so it’s important that you know about it and what it means.
If you are new to the ISA funding method, stay with us because this article will explain what the Income Share Agreement is, how it is different from a Student Loan, and what are its pros and cons.
What is an Income Share Agreement?
The Income Share Agreement is a relatively new way to fund your education. In simple terms, signing up to an ISA means that you can get an education without having to pay any upfront course fees, but in exchange for this, you promise to pay a percentage of your future salary to the institution for a set period of time.
Generally, monthly payments are made once you get a job, and the amount of these payments will vary based on your monthly income. So, if you make less money, you’ll pay less money back to the institution over a set period of time, but if you make more money per month, you will pay more money back per month, over a set period of time.
Each institution has their own ‘ISA rules’, so make sure that you familiarize yourself with these terms before you sign up to anything. Things to look out for:
‘Repayment Term’ is the set period of time that you will be repaying your ISA for. For example, if you are financing your college education with an ISA, it can be anything between two to ten years, but if it is a Bootcamp or course the repayment terms are usually much shorter. Each institution varies, so check before you agree to proceed with an ISA agreement.
‘Income Share Percentage’ is a fixed percentage of your pre-tax monthly income that you agree to pay to your institution per month. For example, 12% of your pre-tax monthly income will be paid per month to the institution.
‘Monthly Payment’ is the amount of money you have to pay each month to your institution. It will vary depending on your salary. For example, if your salary increases, your monthly payment increases as well.
‘Minimum Income Threshold or Income Floor’ Some institutions do not expect you to make payments to them until you get a job that pays you the minimum salary required to start paying back your ISA. The exact number depends on the institution, but it can be anything between $30,000 a year and $60,000 a year, for example. Only when you reach the minimum salary requirement will you start making monthly payments to the institution.
‘Payment Cap’ is a way to protect students from paying unreasonably high amounts of money for their education. It is crucial when you have a long repayment term — let's say ten years - that you do not get overcharged for your education. For example, over 10 years your salary may increase significantly, which could lead to higher monthly payments. So you might pay back the ISA faster at this repayment rate, but you cannot forget about what you have already paid. Therefore, once your payments reach the payment cap your ISA is complete, even if the repayment term (period of time) has not been met.
You have to carefully consider all of these points before you sign up to an ISA, as they can significantly impact how much you end up paying for your education.
Now that you have a general idea of what an ISA is, let's discuss how it differs from the traditional Student Loan.
Income Share Agreement vs. Student Loan
Generally, with a Student Loan you can easily calculate how much you will have to pay back per month. This is not the case with the income share agreement, because nobody can predict their future income, so it is impossible to say how much an individual will end up paying each month.
But the main advantage of an ISA over a Student Loan is that you know that you will always be able to afford your monthly payments. If you are repaying a Student Loan, you have to pay a fixed amount of money, even if you are unemployed or your salary is very low, and the possibility of pausing or lowering a monthly payment is limited. On the contrary, with an ISA you only pay it if you actually have a job, and usually it only applies if your salary meets the minimum income threshold.
Pros and cons of an ISA
The Income Share Agreement is an excellent alternative to a Student Loan, but of course, it is not ideal for everyone. Here are some pros and cons to consider.
- An ISA's terms and conditions are usually more straightforward and easier to understand in comparison to that of a Student Loan.
- Income Share Agreements are flexible, and students know that they will be able to afford their monthly payments, no matter what.
- If a school or a college provides an ISA it shows that they have confidence in their course and in the success of their students.
- Unlike a Student Loan, an Income Share Agreements is still relatively unregulated. This means that its terms can vary significantly amongst different providers. So you must always read contracts thoroughly to make sure that you know exactly what is going on.
- You may "overpay" over time. If you end up earning a lot of money, you may pay much more for your education than you should have. Sometimes a payment cap is set unreasonably high, or the repayment term is extremely long, so pay close attention to it.
Knowing about these cons will help you to avoid any unpleasant surprises in the future.
To decide if the Income Share Agreement is the right choice for you, you need to consider your career goals, current financial situation, and the terms of a particular contract you are looking at signing up to.
Did you know that you can pay for our Manual QA, QA Automation, and DevOps courses with an Income Share Agreement? Yes, we believe in your success so much that you do not have to pay your tuition fee until you land your first job. All you need to do is pay a registration fee, learn the necessary skills, and you can start your new career in tech in no time at all!