If you are exploring options for funding your education, you might have heard of an income share agreement, leading you to wonder: “what is an income share agreement? And are they a good investment?” Income share agreements (ISAs) are a unique method for funding education. These agreements allow students to pursue a learning path with limited to no funding of their own.
In this guide, we’ll take a deep dive into understanding what an income share agreement is, whether this is a good choice for you and some potential benefits of entering into an ISA.
How an Income Share Agreement Works
An income share agreement is a contract between a student and a lender — in some cases, that lender is the learning institution. Generally, in an income share agreement, the lender pays for the student’s education in exchange for a portion of the student’s salary once they become employed.
Essentially, an income share agreement allows you to begin your education and pay back your education costs at the point at which you have a job.
While technically considered a type of student loan, income share agreements work differently than traditional student loans. With an income share agreement, students do not need to pay any money upfront in order to pursue an education. Instead, depending on the details of the contract, a student will make monthly payments based on the total amount they earn once they land a job over a specific threshold amount. Payments end when the student reaches a predetermined cap or when their payment schedule ends.
For example, an income share agreement might cover the total cost of a degree. Once the student finishes their degree, they will begin making monthly payments to their lender after landing a job making $45,000 or more. Once the student reaches a $20,000 cap, the contract ends.
- ISAs are binding financial contracts between a lender and a student
- Through an ISA, you can start your education without spending money upfront
- Upon completion of your education, you will pay your lender a percentage of your income every month
The Benefits of an Income Share Agreement
Now that you understand what an income share agreement is, you might wonder, are they a good choice? While every student’s situation is unique, income share agreements can be an incredibly beneficial choice for students looking for an alternative education funding option. As you consider this lending option, consider the following three benefits of ISAs.
1: Focus on Your Studies
If you don’t have the funding to pay for your education up front, you might attempt to work multiple jobs while pursuing a degree. This can make it extremely difficult to focus on your studies. In some situations, this results in dropping out of a program early as the stress is too high.
An income share agreement allows you to focus fully on your studies. In many cases, you’ll also get the chance to experience hands-on learning projects as learning institutions are motivated to ensure that you are employable upon graduation. This can help prepare you to land a better job the moment your education finishes and gives you a deeper level of education than simple classwork.
2: Avoid Piles of Debt
Traditional student loans can bury young people in debt early on — a debt that is crushing and difficult to escape. In fact, recent data indicates that in the U.S., around 43 million borrowers hold more than $1.6 trillion in federal student loan debt. Often, this debt must be repaid right away, regardless of your job status.
You can avoid this massive debt through an income share agreement. Instead, you pay back your education only once you land a job above a set income threshold. This puts you at less risk of being crippled by debt early in your career. It also prevents you from paying costly fees associated with putting loans into deferment.
3: Open New Doors
For many students, the inability to afford an educational program has prevented them from exploring new career options. With an income share agreement, you have a new option for paying for your education that puts the majority of the risk on the learning/lending institution. This is a wonderful choice for you if you can’t afford a program, want to avoid traditional loans, and are looking to open new doors.
If you’re considering an income share agreement, make sure you take the time to review the details of the contract offered to you prior to agreeing. Ideally, you’ll want to work with a learning institution that provides the funding. Because the learning institution will only get their money back if you earn enough, they will work hard to ensure that your education prepares you for a high-paying job.