An Income Share Agreement (ISA) is a different way to pay for college or job training. Instead of borrowing money and paying it back with interest, you agree to repay a percentage of your future income after you finish school. In this setup, how much you pay depends on how much you earn — not how much you borrowed.
Although some ISA providers claim their product isn’t a loan, the Consumer Financial Protection Bureau (CFPB) — a U.S. federal watchdog — has ruled that ISAs are, in fact, private student loans.
So before you go this route, make sure you’ve used up all your federal student loan options, and compare the ISA terms carefully with traditional private loans to see which is better for you.
What Exactly Is an Income Share Agreement?
An ISA gives you money upfront to help pay for your education or training. In exchange, you agree to pay back a fixed percentage of your income for a certain number of years after you graduate.
This means:
- You could repay less or more than what you received.
- The repayment depends on how much you earn after school.
The concept of ISAs isn’t new — it dates back to a 1955 essay by economist Milton Friedman, who introduced the idea of investing in “human capital” as a way to fund education. While ISAs have grown in popularity over the last few years, they are still not widely used as a primary funding method for higher education.
Currently, around 50 colleges in the U.S. offer their own ISA programs, according to Vemo Education, a company that helps schools set up ISAs. These programs sometimes receive funding from private investors. In addition, some alternative education providers — like Lambda School’s coding bootcamps — rely entirely on ISAs instead of traditional student loans.
You can also find private ISA providers like Stride Funding, which offer ISA options that can be used at many schools across the country.
Why ISAs Are Now Treated as Loans
In the past, many ISA companies said their products weren’t loans. But in 2021, the CFPB ruled that a company called Better Future Forward was providing private education loans, not a different kind of product.
This decision required the company to stop calling its ISAs “not loans” and follow the same rules that apply to other private student lenders — including disclosing fees and interest-rate equivalents.
Legal experts believe this CFPB ruling applies to the entire ISA industry, meaning more transparency could be required across the board. This would make it easier for students to compare ISAs with standard student loans.
How Income Share Agreements Work
ISAs are currently not heavily regulated, although that may change. The way an ISA works depends on the provider, but generally, you begin payments after leaving school — and only if you’re earning above a certain amount.
If you lose your job or your income drops below the minimum threshold, your payments may pause.
Here are the key parts of a typical ISA:
- Income Share Percentage: The fixed percent of your income you’ll pay every month. Most fall between 2% and 10%.
- Salary Floor: The minimum salary you must earn before payments begin. For example, Lambda School sets this at $50,000, since graduates are expected to earn at least that much.
- Payment Cap: The maximum total you’ll repay. A typical cap might be 2 times the amount borrowed. Be cautious of ISAs with no cap or caps over 2X, as you could end up paying much more than what you received.
- Repayment Term: How long you’ll be required to make payments, often between 2 and 10 years. Some ISAs count non-payment months (when you earn below the salary floor) toward the contract term, while others extend the term until payments resume.
Example: How an ISA Might Work
Let’s say your ISA agreement says you’ll pay 5% of your income for 10 years. If you start earning $52,000 right after graduation and your salary increases by 4% each year, you would:
- Pay about $217/month at first
- Repay a total of $31,216 over 10 years
Now, if your agreement was instead 18% of your income for 2 years, your monthly payment would jump to $780, and your total repayment would be around $19,904.
As you can see, your total repayment can vary a lot depending on the income share percentage and the length of the contract.
Is an Income Share Agreement Right for You?
Whether an ISA is a good idea depends on your career path and the details of the contract.
Let’s go back to the example above: If you received $20,000 in funding and repaid $19,904, you’d save money. But if you repaid $31,216, it would be about the same as having a student loan with an interest rate of 5.23% — still a competitive rate, but not the best available.
If you’re heading into a high-paying field, your ISA terms will likely be more favorable. But keep in mind — the more you earn, the more you’ll repay, which could mean paying much more than what you borrowed.
Watch out for:
- High payment caps
- Long repayment terms
- High income share percentages
These are warning signs that the ISA might not be worth it.
When Should You Consider an ISA?
An ISA might be a good option if:
- You’ve used all your free financial aid (like grants and scholarships)
- You’ve already borrowed the maximum in federal student loans
- You can’t qualify for a traditional private loan or get high interest rates even with a co-signer
But if you can get a private student loan with better repayment terms and lower total costs, then the loan will usually be a more affordable choice.
Final Thoughts
Income Share Agreements offer a unique and flexible way to pay for school, especially if you’re unsure about your future income. They tie your payments to how much you actually earn, which can be a safety net if your career takes time to grow.
Still, ISAs are legally considered loans, and they can sometimes cost you more in the long run. That’s why it’s essential to compare all your options — including federal loans, private loans, and ISAs — before making your decision.
Always read the fine print, understand the income thresholds, repayment limits, and terms, and consider talking to a financial aid advisor before signing.
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