Income Share Agreements vs Student Loans
Every day we hear about people who fall behind on their student loans. With student debt in America amounting to $1.6 trillion, overall outstanding private student loan debt at $124.65 billion, and 5.2 million student loan defaults in 2019, people are beginning to try to find new and better options to pay for their education.
Student loans follow you and grow larger continuously because of interest on your outstanding debt. It follows you regardless of whether you’re doing well or scraping to get by. Recent studies show that 34 percent of students with as little as $5,000 of debt default on their student loans. This default rate is a drag on financial growth.
Now there may be a better way to pay for your education.
Imagine if you never ever had to take out a student loan to pay for school. Suppose rather than borrowing a large amount of money at a certain interest rate, you simply promised to share a percent of your future income for a period of time to cover the price of your education. What happens if that same arrangement came with protections that stop your payments if something unexpected happens like losing your job or a sudden cut in income??
That’s the basic concept of Income Share Agreements, or ISAs. The Income Share Agreement idea is not a new one. It’s been around since the 1950s, but the application of ISAs is brand-new. As student-loan defaults surge, people are looking for safer alternatives to pay for their education.
ISAs are developed to make certain students can get the education and skills they need without a dark cloud of financial obligation over them. ISAs make sure repayments costs are affordable by connecting repayment to employment outcomes. They shield students from when things go wrong, like not getting a job or losing their job. In other words, with an Income Share Agreement, if your education and learning does not pay off, you do not pay either.
Below are a couple of ways that Income Share Arrangements differ from standard loans:
If you don’t have a job or make less than a minimum threshold, you don’t make any payments
There’s this myth that states if you have a university degree you will get a great job. Sadly, that’s not the situation these days. Roughly 53% of university graduates are unemployed or operating in a job that doesn’t require a bachelor’s level according to Washington.edu.
With private loans, you’re obligated to pay them back whether you have a good-paying job or not. The bill is due every month regardless. If you cannot pay, your alternatives are limited.
ISA repayments are not the same. If you are not able to get a job after finishing, with an ISA agreement you have protection. If you’re earning less than what is agreed upon (called the Minimum Earnings Threshold) or are out of work, your payments are on hold. You do not need to pay till you have your great job.
Greater flexibility than regular student loan debt
Unlike a regular student loan, you won’t have a fixed payment with an ISA.
Students using an ISA only make payments if they are making the minimum threshold income or more. Those who are very successful will never repay greater than a capped limit. You are done with your payments when your Payment Window is over (typically 5 years), your Payment Cap (the maximum amount that could be repaid) has been reached, or if you have made the total number of payments (whichever comes first).
Let’s compare three examples: one with a starting, pre-tax salary of a project manager, $50,000, one with greater pay, $90,000, and also one with much lower pay, $39,000.
In the very first scenario, you’ll wind up paying $333 a month or $6,000 over 18 months. In the second you pay $633 a month, or $9,600 over 18 months. In the 3rd scenario, you’ll pay absolutely nothing until your income is at least $40,000. As long as you are making at least $40,000, you will make payments until your ISA is paid. If your income remains below $40,000 for the 60 months your financial debt will end without making any payments.
Of course, the above examples are if your pre-tax earnings stayed stagnant for the whole time. If your income was cut in half or doubled your repayments would likewise be cut in half or doubled. If your income does go up, your payments would cease once you hit the cap.
An ISA is an investment in your future
Under an Income Share Agreement, students more flexibility.
Because their future funding hinges on graduates securing a good job, we offer job placement assistance. This helps students to feel secure when they pick a school or program since they won’t have to pay until they get a job.
Schools have less incentive to assist grads locate a good-paying job under typical student loans since their payments are not tied to the student’s income and the lender will have most likely currently paid them for your tuition.
A choice to the student funding dilemma in America is long past due. We believe ISAs are a fantastic choice. If you’re seeking to start a new profession through an Income Share Agreement funded education program, give us a call or make an appointment today!
Check out two of the most popular programs for ISA’s:
Project Management Professional
Cyber-Security IT Professional