What Are Income Share Agreements (ISAs)?
As the rising costs of education continue to burden parents and students alike, many families are looking for alternative ways to finance a college degree. Enter the ISA, or income share agreement. Designed to help students avoid borrowing loans with sky-high interest rates, ISAs provide students with a set amount of tuition money each school year. Once the student graduates and secures a job, they have to start paying back the ISA as a percentage of their income.
ISAs are becoming increasingly popular, with multiple colleges and universities now offering their own programs. In 2017, a Virginia-based Ed-tech company called Vemo Education $23 million in ISAs at schools across the country, including most notably, Purdue University. Purdue’s Back a Boiler ISA program is one of the best-known and most thoroughly developed options out there. A new way to finance a college degree, this program requires students to pay off a portion of their tuition for a period of 10 years following their graduations. That amount varies based on the student’s salary, with higher earners paying back more than those in the lower income brackets. Graduates who are unemployed don’t make payments.
Like the Purdue program, most ISAs cap total payments at around 2.5% and allow for a grace period before students have to start repaying the ISA. Terms may vary based on the field a student plans to enter, with more favorable repayment options available for those in the STEM fields. ISAs generally feature a minimum income threshold, so students earning lower salaries might not have to make payments until their wages increase. Because ISA repayment rates are calculated by industry, if you wind up paying less, it likely means you’re earning less than the average salary for your field.
While ISAs can help make college tuition affordable for students who have exhausted federal loan funding and other monetary sources, critics argue that students often end up paying back significantly more money than they borrowed in the first place as their salaries rise. Keep reading to learn more about the Purdue ISA, along with some of the other programs available throughout the US.
Schools with ISAs
Thinking of pursuing an income share agreement to attend college? Here are eight colleges and universities that boast ISAs:
1. Purdue University
The ISA at this Indiana institution, also known as Back a Boiler, serves as a supplement to student loans rather than a replacement. Unlike some ISAs that allow any student to take part, this program is specifically for non-freshmen who have used up their federal loan allowance and are looking for additional funding in the form of private loans or Parent PLUS loans. Moreover, students must be U.S. citizens or permanent residents who are enrolled at the school full time and meet Satisfactory Academic Progress (SAP) toward a Purdue degree program. Participants cannot have any bankruptcies or wage garnishments on their credit reports in order to be eligible.
After graduating from Purdue, an ISA participant is contractually obligated to pay back an agreed-upon percentage of their income for a set period of time. Once the time period has elapsed, they are not required to make further payments, even if the balance of the loan has not been repaid in full. While students who opt into this program don’t incur interest, in the long run they do tend to pay back more than they borrowed.
2. Lackawanna College
Available to students in select majors with a GPA of 2.5 or above, the Lackawanna College ISA supplements federal student loan payments. Participants have a six-month grace period after graduation before they’re compelled to start paying back what they owe. However, students earning less than $20,000 a year are exempt from making payments. Additionally, Lackawanna ISA students only make payments for a period of about five years. After this time has elapsed, alumni no longer owe the school money, even if the “loan” hasn’t been repaid in full. According to the school website, the percentage of a student’s income required to fulfill the ISA payment is based on the amount of money they received, among other factors.
3. Clarkson University
Funded by donors, Clarkson’s selective ISA only helps 20 students each year for a period of four years. Participants have the opportunity to secure up to $10,000 of interest-free funding per school year. If you borrow $40,000 over four years, for example, you can expect to hand over 6.2% of your income annually for 10 years after graduating. The amount paid in a given month varies based on the individual’s wages during that period.
4. Messiah College
This private Christian school offers an ISA that funds both undergraduate and graduate students in occupational and physical therapy. Founded in 2018, the ISA requires students to repay 3% to 3.5% of their wages for a set period of time, provided that their salaries exceed $25,000 annually. Messiah College ISA recipients fulfill their obligation when they either complete the required number of payments, hit the payment cap, or reach the end of the payment window.
5. University of Utah
Still in its pilot period, Utah’s Invest in U program is only open to undergraduates who will be completing their degrees within the current academic year. Total available funding ranges from $3,000 to $10,000 per student, and participants must be majoring in one of 18 approved programs. If you opt for this ISA, expect to pay back 2.85% of your salary for up to 10.5 years. Note that you can refrain from making payments while attending graduate school or earning less than $20,000 annually.
6. Make School
A computer science college, Make School invites students to finance their degrees with a partial or full ISA worth between $35,000 and $70,000. Individuals who opt for the former can expect to repay 20% of their gross salary for a period of 30 months. On the other hand, those who choose the full ISA should anticipate paying 20% of their salary for a 60-month period. Additional funding for living expenses is also available to Make School students and must be repaid with 5% to 7% of their gross income for a period of 10 years after graduating.
7. Norwich University
The only military school to offer an ISA, Vermont’s Norwich University is an expensive proposition at $57,514 per year. Open to sophomores, juniors, and seniors, this ISA allows aspiring service members to defer the cost of earning a degree. Participants will receive reduced tuition rates in exchange for a set percentage of their post-graduation income over a set period of time. According to the university, 48% of 2017’s graduating class was employed by 2019.
8. Colorado Mountain College
Available exclusively to DACA (Deferred Action for Childhood Arrivals) students and other non-citizens who don’t qualify for federal aid, Colorado Mountain College’s ISA is a privately funded program that provides participants with up to $3,000 a year. (Note that CMC’s tuition is only $2,400 annually.) The repayment period begins six months after graduation and requires students to turn over 4% of their income for a period of up to five years. Individuals earning less than $30,000 don’t have to make payments.
Pros and Cons of ISAs
Clearly, ISAs are rising in popularity, with a wide range of colleges now offering them to students who might not otherwise be able to attend school. However, the loan amounts and repayment terms vary widely, and students should do their research before entering into any type of agreement for financing their degrees.
While ISAs are certainly enabling a wider assortment of students to earn their college degrees, this payment option comes with both positives and negatives. We’ve detailed a few of these below.
More Affordable Repayment Options
ISAs come with numerous benefits, including the ability to repay money with less difficulty. With ISAs, students have the opportunity to adjust payment amounts based on salary. As a result, graduates are more likely to be able to afford ISA repayments than student loan payments. And because ISAs come with a minimum income threshold, students working entry-level jobs with low wages don’t have to worry about struggling to pay. This option is particularly beneficial for students entering fields that often feature low starting salaries.
Payment Is Tied to Salary
Of course, ISAs do come with some drawbacks. In many cases, ISA participants can wind up paying far more than they borrowed. Consider the case of an Environmental and Ecological Engineering major at Purdue graduating in May 2020, who borrowed $10,000 their senior year.
According to the Purdue Back a Boiler comparison tool, this individual would be expected to pay 3.03% of their income for a period of eight years. If this student had a starting salary of $53,000 and income growth of 3.8% per year, they would likely pay back $14,959 for an ISA, versus $15,727 for a PLUS loan at 7.08% and $17,125 for a private loan at 9.5%. However, if the student started out earning $60,000 and had the same annual growth rate, they could expect to spend a shocking $19,083 to repay the ISA. That’s nearly twice the amount of money they borrowed. In general, students who anticipate earning higher-than-average salaries should expect to pay back far more than they borrowed for an ISA.
Minimum Payment Caps
To make matters worse, borrowers aren’t really permitted to repay ISAs early the way they can for student loans. At Purdue, for example, the only way to get out of the ISA is to pay the maximum payment cap (twice the amount borrowed). So, participants with higher salaries may have to wait longer to enjoy the fruits of their labors.
Overall, ISAs tend to feel safer than student loans because of the minimum income thresholds and set salary percentages. However, it’s worth noting that students often wind up paying the school back significantly more than they borrowed. If you’re considering this college financing option, it pays to do your research. Examine all the different aid options available to you before deciding which one is right for your family.
Have additional questions about Purdue’s ISA program? Don’t hesitate to check out the school’s FAQ page for more information.
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