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What You Need to Know About Income Share Agreements (ISA's)

Given the economic implosion we are in right now and the likely need there will be for many people to go back to college or get other education without the funds to pay for it, ISAs may become WAY more common

What is an ISA?

An ISA or an Income Share Agreement is simply an agreement between the student and the college to help the student pay for school. When a student goes into an ISA with their college, they agree to receive money (borrowed money) from the college to fund their education, and in return, the student agrees to pay the college a percentage of their salary after they graduate, and most likely for many years to come. 

As your income grows, the amount you owe on your ISA will grow as well - the more you make the more you owe each month. 

Is an ISA a loan?

While an ISA is being presented by many colleges as a great “alternative” to a student loan, (note, ISA terms will vary from school to school.)

The bottom line is that it quite simply is a loan. Remember, any money that you “borrow” from anyone is by definition a loan and puts you in debt. 

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Buyer Beware

A student may see the benefit to an ISA, being that they only need to start paying it back once they have a steady income, and if they stop working they can pause their payments.

The idea of zero interest is also very appealing but in practice, students will most likely pay back more than they borrowed, which is in many ways what we call “interest.” 

Ultimately the quality of these agreements comes down to the exact terms and conditions.

Just as some student loan terms are great and some are awful, income-share agreement quality could vary greatly. 

Students considering an income-share agreement should look very closely at the cap in payments.  If the cap is too high or the length of the share is too long, it could result in very unfair terms to the student. 

There are no tangible incentives for paying back your ISA and colleges are not going to really come after you to pay them back until you have a higher paying job as they obviously would prefer to get a percentage of your salary as your income grows. 

What It Will Actually Look Like

Let's break it down with an example; Your student takes out $100,000 worth of ISA funding from their college. They finish their studies and land a job with a starting salary of $30,000. The ISA payback is 7% of their income for 10 years.

This money has to be paid back!

This means $2,100 is paid back for each year your student makes $30k. If after four years, your student's salary jumps to $34k and then $38k after another four years, they will pay back far more than the amount borrowed. This becomes interest, money your student could be investing in their 401K.

Should you go the ISA route?

Our advice to you is to be very careful and clear about what the terms are and what it will actually look like after college when you or your student start working fulltime.

Do your research and make sure you understand the fine print of what you are committing to first. 

Visit SimpliCollege today to find out more about navigating the college process with confidence. 

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