# 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.

### 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.

### 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.

## 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.