Income Share Agreements: Pros, Cons, & Providers

Income share agreements have been around for a while now, but they are still quite new to the general public. Educational income share agreements started in the 1990s to help students pay for tuition at colleges and universities, but they have also been used in other fields such as healthcare.

Educational income share agreements can work to pay for college costs by enrolling in an agreement with a specific school before applying for financial aid. You must also agree that you will be obligated to repay some of your loan if you do not complete the program.

Most people don’t know what an income share agreement is or how it works. This guide will define what an income share agreement is and explore the many different types of income share agreements available today. It will also discuss some of the pros and cons that come with this type of financial arrangement as well as who can provide income shares agreements to you. Finally it will also detail the future of money regarding risks and rewards of income share agreements.

What are Income Share Agreements?

Income share agreements can be defined as as a contract between an investor and the income-share agreement company. The investor is providing capital to be loaned out at interest rates that are set in advance of the investment. In return, they will receive some agreed upon percentage of their income (usually 20%) of each payment collected from the person who received the funds as repayment for their debt or credit obligations. Just as options vs futures are contracts, so are ISAs.

Sometimes personal proportion of loan balances to loan amounts is too high, limiting borrower options. That’s when ISA’s are beneficial.

Income Share Agreements with Educational Loan Lenders

There are also income share agreements in education for colleges and universities that exist especially for student loans as a way to pay for college tuition. The income share agreement is an agreement between the student and a lender to repay their loans in monthly installments for a predetermined number of years, typically ten.

The percentage paid each month will vary depending on how much money is being earned from work-study or other scholarships. These agreements can also be referred to as Income Share Agreements with Educational Loan Lenders (ISAL) used to finance a future career.

An ISA contract with educational loan lenders (ISAL) are agreements that provide income-driven repayment options. The terms of the agreement vary from lender to lender and is dependent on your financial circumstances, but ISALs do not require credit checks or cosigners in general. They can be applied for at any time while you’re in school or after graduation when a borrower has an outstanding student loan balance. Knowing that $40,000 a year is how much an hour will help determine if your repayment plan will be feasible after graduation.

Are Income Share Agreements Expensive for Students?

Typically the amount of money and cost for college income share agreements for students is lower than that of other loan types. ISAs with educational lenders are not federally funded, so there is no government interest rate or subsidized payment options. However, the repayment plan for income share agreements is based on borrowers’ income-earnings ratio and their family size as opposed to a set monthly amount.

The agreement can be paid back in full at any time without penalty; therefore if you have high earnings you can pay down your loan quickly. If you are following a budget by paycheck method, knowing your ISA repayment amount can be helpful.

Income share agreements with educational lenders might be cheaper for the students, but they will also have a set maximum amount of funding. This is based on certain factors and varies by each college.

How do Income Share Agreements Work?

Colleges are now offering another alternative for students to pay for the cost of college with ISAs. This is a viable option for students who are unsure of their career path and don’t want to take on a significant monthly student loan repayment.

Income share agreements for students are based on paying a percentage of your job future wages towards your loans for college you have now. Paying a percentage of your future wages is often a better way to finance your college education because it is based on actual income.

ISAs work by the college agreeing for you to pay back your education costs in exchange for a percentage of your future income, usually between three percent and twenty-five percent depending on how much is invested. This can be advantageous because it won’t require any immediate payment from the graduate until they reach an income level where they feel comfortable paying off this debt with their current earnings. It can help you avoid a lifestyle of frugal living after graduation.

In general things to consider when deciding on income share agreements is the interest rate and how much you’re agreeing to pay in income.

Income Share Agreement Pros

One of the benefits of income-share agreements is that you can avoid being in debt for decades like most students are today. Your payments depend on what kind of salary you earn after graduation which means there’s no need to save up money as much upfront because ISAs vary depending on where each person graduates from (and how successful he/she is).

Most income share agreements also require borrowers to pay only when their discretionary income increases, but this is widely based on the schools ISA policies. Therefore, even if someone doesn’t make more money at their job, they may not be required to make higher payments on their income share agreement.

Income share agreements are popular because they’re a way for students to get financial help without having to go into debt and accrue interest while in school. That’s key. The time saved doesn’t allow interest to accrue.

The number of students who finance their college costs with income share agreements is expected to grow in the next few years because income share agreements are an attractive alternative for students struggling with student debt and getting out of debt as a result.

Benefits of ISAs:

  • No interest accrued on an ISA during college as is typical with financial aid and student loans.
  • You are not required to have a credit score or any other qualifications.
  • Payment is contingent on you finding a well paying job after graduation. This should help with the monthly payment and liquidating your debt quicker than if it were just based on graduation .
  • Less expensive alternative than a traditional loan, since you only have to pay back what you make after graduation.
  • Depending on where graduates go to school, there may be different options offered by various providers

The upside is that there are some schools where you can get these agreements at a lower cost so they could be worth looking into if this seems like the right path for you.

benefits of ISAs
ISAs Offer Multiple Benefits for Students

Income Share Agreements can help borrowers get their financial lives together without having any negative effects like credit score damage that is associated with other types of loans.

Income Share Agreements Have Attractive Benefits to Students:

  • It is possible for the income share agreement to be canceled if you make payments on time. You will owe nothing at all in that case. If your school agrees to cancel the contract, then some or all of the money you initially borrowed can be refunded back to you with interest as well.
  • There may also be options for graduated repayment (lower monthly payment) after a certain period of time so this might help out people who want lower monthly installments but don’t have enough disposable income when it comes down to their cash flow situation. This would allow them more flexibility as well.

There are many benefits to using this type of agreement over a traditional student loan or other sources of funding because it’s not as risky for both parties involved in the contract. For example: if you have an illness that requires long term care then there is no risk for defaulting on payments like with a typical student loan.

Income Share Agreement Cons

One of the downsides is that income share agreements have a very high monthly payment. Typically the monthly payment of income share agreements are between 15-25% percent of your discretionary income each month. This means you will be paying more than when in traditional student loans and payments are not capped. This can make it difficult if you don’t earn much money after graduation in your career or want to start saving your salary up for other things before starting making payments on the agreement.

It might be hard for you to save for things like funding a house. An income share agreement payment might hamper your drive to save for a house down payment fast because of the heavy ISA payment.

Another downside is that some people do not qualify because their college degree isn’t relevant enough (i.e., too many humanities courses). ISA programs also require borrowers to have enough income potential to qualify, which means that if you don’t have a job or are unemployed after graduation, then it can be problematic. Certain college majors might be problematic for some students wanting to finance their college with an ISA.

The Cons of ISAs for Students in College:

  • The money can’t be used to start or grow a business rather it has to be used for college and not financing.
  • You may have to repay some of the costs back if you do not graduate college.
  • The school where you attend will have a different ISA program and terms than other universities and colleges. Rates and terms of the ISA program vary considerably by each school. This all affects the repayment terms and overall amount that has to be repaid.

It’s hard to find colleges that offer ISAs because it is not required for universities to offer these types of loans.

Risks of Income-Share Agreements

Income share agreements are risky. The biggest financial risk of income share agreements for students is that it can affect their future for years. Additionally, if you are faced with a medical condition and cannot work, most of the time your ISA will not give you any protection relief.

The risk of income share agreements is that it’s very hard to tell with certainty how much money you’ll end up paying out because of all the variables involved in trying to predict what your future salary will look like.

With traditional federal student loans, you know exactly how much your payments would be based on interest rates and loan terms but those factors change with an income share agreement. The significance is that you don’t really know what kind of burden it may put on your future years.

The repayment terms and rates also vary considerably based on different collegiate programs at institutions.

Vemo Education Lawsuit

You should make sure to research out the providers of ISAs. Vemo education for example is being sued for fraud and predatory practices according to the Washington Post.

How do You Make Payments on an Income Sharing Agreement?

Unlike most student loans where your monthly repayment is based on how much you owe or what interest rate applies, income sharing agreements have a fixed payment. This amount usually ranges between $200-$400 each month regardless of the balance owed under the loan. There are differences in outstanding balance vs principal balance in how payments are applied. Colleges determine the monthly amount and the length of time it will take to repay your debt, but this is usually a set number that cannot be changed.

Most of the time, you will make your payments on your income share agreement back to your college that signed the agreement with you. No need to worry about how to void a check because most of these repayment plans can be EFTs.

Best Income Share Agreement Alternatives

There are alternatives to income share agreement programs. First, income share agreements are not only available for students. You can also get an ISA from a parent or family member to pay off your loan. Most private attorneys can help navigate these types of contracts.

Second, if you really want the flexibility of paying monthly but don’t want all this risk, there’s always an installment plan which will have lower interest rates.

Third, you can try to lower your living expenses after college graduation by utilizing cheap housing options so you can focus your income on repayment.

income share agreement alternatives
There are Alternatives to Income Share Agreements Including Private Lenders and Refinancing

You must take into account whether or not you’ll be able to make monthly installment plans even if you won’t have employment after graduation.

There are a few alternatives for income share agreements:

  • Paying off your student loans with an income-driven repayment plan that can cap monthly payments at a percentage of their discretionary income, and forgives any balance after 20 or 25 years.
  • Consider refinancing the loan through another private lender (or private loans) who provides a fixed low interest rate to avoid higher rates on Income Share Agreements.
  • You can utilize student loans and consider moving back in with parents to save money after college and pay back your loans.

You could also skip college altogether and focus on skilled trades jobs. You can make a great living in some fields such as highest paying welding jobs where you can be your own boss eventually.

Income Share Agreements and ISA Providers

So far, income share agreements are only available at a few universities, but more schools may offer this type of loan to students in the future. There is no standard for who can provide an ISA either so it could be exclusive or widespread depending on where you go to school.

income share agreement colleges
College ISAs

This type of agreement is only available at certain schools so they may not be as accessible depending on where you live which can make them even more expensive than traditional student loans if that happens to be your only option. In some cases these arrangements could cost up to $100,000 over 25 years. That would just about wipe out any money you might have left over from your income share agreement to pay for other living expenses like rent, food, and transportation. Living in a housing cooperative will help lower your living bills.

Some of the colleges that offer income share agreement loans for students are noted in this table below:

Income Share Agreement Colleges
University of Cincinnati
Union College in Schenectady, New York
University of Utah
Purdue University
Ohio State University
Rutgers University in Newark, New Jersey
Income Share Agreement Colleges

Purdue Income Share Agreement

Purdue University offers an ISA contract that looks and feels a lot like any other loan application. Their website has all the information you need to know about income share agreements, including an eligibility calculator so that you can see if this type of contract is right for your educational needs, as well as additional financial aid advice.

Purdue ISA Eligibility Calculator

As part of financing tuition, Purdue offers an eligibility calculator to help you determine if an income share agreement is right for your educational needs. You can access the calculator here on the Purdue site.

Are Income Share Agreements for College Tax Deductible?

No, income share agreements are for the purpose of obtaining higher education and therefore they are not tax deductible. They also don’t technically charge interest. You are making a repayment on a loan back at a certain percentage each year after graduation, so they function differently than student loans.

Are Income Share Agreements Better Than Student Loans?

In some circumstances income share agreements might be a better option for obtaining higher education than private and federal loans. There are many reasons to avoid student loans as well. If you are not eligible to take out student loans, then an income share agreement could be the best solution available to you.

The disadvantage with a student loan over an income share agreement is that with a student loan you are immediately paying back the principal and interest, while income share agreements only start to repay after you graduate. Your payment is fixed with federal student loans, however.

Yes, income share agreements are a legal and viable option for colleges to offer their students. Some institutions of higher education might not be offering them though because the current legislation doesn’t require them to do so. Once there is some new legislation that requires it from all schools, then we will start seeing more often offered by colleges as well.

Why Do Colleges Offer Income Share Agreements?

The main reason why colleges choose to offer these programs is they believe in making post-secondary education accessible and affordable for their future graduates. This program also helps with student retention rates which can have an impact on the college’s workforce needs and college ranking too.

ISAs also help colleges to bridge the gap between what a given student can afford and how much it will cost to get through their degree.

Can You Use an Income Share Agreement for a Car Loan?

Yes. If you are looking how to get pre-approved for a car loan when you have bad credit, you might want to consider an ISA. This is a great way to finance all or part of a vehicle purchase when you can’t get traditional bank financing.

Paying for College with Future Earnings

There are many pros and cons of both income share agreements and loan-based college financing. Which one is the best option for you will depend on your personal situation, income expectations, your drive for living stingy, and expected debt load after graduation.

Education is expensive and the cost of higher education continues to rise every year. In recent years, there has also been an increase in student loans giving students more options when they finish their undergraduate degree.

While Student Loans and ISA programs both differ, they do offer the student a way to pay for their education if they qualify. Generally you are not accruing interest with an ISA from your college as you are with student loans. The difficulty will be finding a college that offers ISAs.

BG Vance

After starting over financially in mid-life, I decided to share my experience and financial lessons learned with others. I have over two decades worth of professional and personal financial experience helping individuals and families in all stages of life realize their financial dreams. More about me...

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