What is an income share agreement (ISA) and is it worth it?
Quality education comes at a price and this is a reality that many student face. College tuition in the United States can be exceptionally expensive and many students resort to student loans from banks, or even from the school itself to be able to afford a quality education.
Student loans may seem helpful at first but actually, these loans can accumulate huge interests over time. Students may find themselves paying off the interest from the loan even for years after their graduation. A new alternative to student loans is an income share agreement (ISA).
What is an income share agreement?
An income share agreement is simple. A student agrees to share part of their income, after graduation, to their school. In return, the school lends money to the student to be used as payment for school fees.
In a sense, an ISA works like a loan because students still need to pay what they owe. But here are the reasons why an ISA is a good alternative to student loans:
With ISA, you only have to pay for a predetermined time. Also, there will be no interests that would pile up to the amount that you borrowed. However, there is one thing that you should consider: the ISA payments are dependent on your income. This is where things get tricky, because you may have to pay a higher rate compared to what you borrowed. You may also pay a lower amount compared to what you borrowed, but the chances of that happening are slim.
That is why it is recommended to maintain your income for at least a year when you apply for ISA. Doing so, will ensure that your ISA payments would not increase until you are ready to pay a higher amount. So you have to be careful from the ISA taking an increasing chunk of your income.
There is also an income threshold or an income “safety net” for ISA payments. For example, if you cannot find a job after graduation, you can skip ISA payments until you find a job. Also, if your job is not paying well or your income does not meet the threshold, you can get exempted. Keep in mind that the income threshold, and payment terms vary from one school to another.
When you apply for ISA, you no longer have to attach signatures of your parents or guardians to be your co-signer. You also do not have to accomplish multiple copies of forms that are present in almost any private loan applications. Most universities have a hassle-free application process for ISA. Often, you would only submit a valid student ID along with an application form.
Compared to student loans where you need a good credit score, in ISA you will be assessed based on standing. Your major would also be considered when applying for ISA. There are some ISA programs that have special benefits for certain majors. But over-all, each major is given a fair chance to get approved in the ISA.
Of course, better terms would be offered to those who are academic achievers. So if you want to make the most out of a hassle-free ISA application, make sure to have good grades.
Preference for senior students
When you are in your senior years as a student, you have a high chance of getting your ISA approved. This is because the ISA programs of most schools aim to help seniors in the early stages of their careers.
This is extremely helpful for seniors who are juggling work and studies just to pay off school fees. They can sign up for ISA instead and focus on completing studies so they graduate and start their professional lives.
There is also a high chance for juniors to get their ISA application approved. Similar to the seniors, those with excellent academic performance are given better terms in the ISA. But be mindful of the rate of your payment when you sign up for ISA. Some schools are focused on the earning potential of a student instead of being focused on funding their education.
Things to consider before getting an ISA
Getting an ISA might look like the “answer” to every college student’s financial problems, but it is not. Like any other financial agreements, there are risks involved. Applying for an ISA is something that should not be rushed into. You should only apply for an ISA if your current situation actually calls for it.
Therefore, here are some things to consider that can help you decide if you need an ISA or not:
Exhaust other options first
There are many ways to fund your education, so even if economic recessions hit, be sure to explore such ways. You must not treat ISA as the only option, because it might do you more harm than good later on. ISA is also like a loan, so you should only resort to this if you have no other way.
Another good way to pay for your education is to get into freelance jobs. You may have to spend more time and energy on it, but it will give you a decent source of income. Make sure that you can handle additional workloads to your schedule to be able to succeed in your freelance job.
There are also some students who find it hard to balance freelance jobs and their studies. If you are like them, you can also try borrowing money from your relatives and families. Doing so can also help you get an “interest-free” loan compared to when you apply for other private loans.
Consider your financial goals
Keep in mind that ISA payments would be another expense or liability for you later on.
Your future financial goals should be prioritized and ISA should help you achieve that. By giving you money to pay school fees, you can get a degree that would help you get a job. However, if you think that ISA payments would delay your financial goals, then you should not get an ISA.
Remember that the money provided by ISA is there to ease off the burden of school fees. It should not add an additional burden for you to bear in the future.
Plan your career ahead
Lastly, you should also consider the career that you would pursue after your graduation. If you are aiming to go for high-paying jobs, then you should be prepared to make higher ISA payments.
Do not forget that as your income increases, your ISA payment would also increase. You might be better off investing the supposed ISA payment when your income increases.
Also, you cannot hide your income when the ISA payments come due, otherwise, you will face sanctions.
Think it through before agreeing
Getting an ISA is not for everyone. When you apply for ISA, remember that you are entering into a financial agreement that will span for years.
The program can impact your income and spending behavior for years after graduation. Make sure that when you apply for ISA, you will be comfortable making payments that are based on your income and that you have legal council to provide you guidance so you understand the risks.