The rising balances of traditional private student loans are a major problem. Signing up for a traditional loan without knowing exactly how much you could be paying back or how you’ll be able to handle your monthly payments could be difficult. 

One solution that has been gaining traction among online bootcamps and colleges alike are Income Share Agreements. (ISAs). 

An ISA is an agreement where, in exchange for tuition, after graduation and as long as you’re earning an agreed-upon income, you pay a percentage of your income back to the college (or funder). Besides the absence of growing interest and generally, no upfront payments, a significant benefit of ISAs is the fact that there are certain instances when your payments are paused or deferred.  

With traditional private student loans, you have a principal, the borrowed amount, and an interest rate. You pay back the amount of the principal plus any interest you accrue while paying it back.

ISAs keep students from paying for educational experiences that don’t create value for them in the labor market, aligning the risks and rewards of education and creating better outcomes.

Are you considering signing an Income Share Agreement? Here’s what you need to look out for before you sign your agreement to make sure your payments are manageable. 

What are the ways to finish my ISA?

By far the biggest differentiating factor between ISAs and traditional student loans, other than the built-in benefits, is the way they’re satisfied. With an ISA contract, there are three distinct ways you can finish your ISA: 

1. Make the required number of payments

With an ISA, you pay back a percentage of your earnings each month for a set number of months. Each of these payments is considered one of your Required Payments. If you pay all the Required Payments, your ISA amount is satisfied! 

2. Pay the Max Payment Cap

The Max Payment Cap is built into your ISA and is the most you’ll ever need to pay towards your ISA. It is a built-in protection for high earners so that they are not punished for earning more than expected. A Payment Cap is usually some amount more than the Funded Amount (the amount the school is fronting you for their program as part of your ISA). Once your total payments reach the payment cap, your ISA is also satisfied!

3. Reaching the end of the Payment Window

The final way to end an ISA is by reaching the end of the Payment Window. The school or funder who you have an ISA with will have a set time period to collect your Required Payments or Max Payment Cap. However, if you have not reached either of those two and the Payment Window ends, you’re absolved of your ISA.  

To read a more in-depth version of how to finish your ISA payments click here!

What should I be aware of before signing an Income Share Agreement? 

1. Use the Income Share Percentage to calculate your future payments

Before you sign your Income Share Agreement you need to be aware of how much of your gross income you’ll end up paying each month. Remember this factor runs along a sliding scale with the Maximum Payment Cap and Payment Window. So, even if your ISA is only a small percentage, you’ll want to look at your Payment Window to determine for how long you’ll be paying that small percentage of your income to make sure it doesn’t add up to a huge total amount. Determine just how much you’ll be paying each month based on your anticipated salary, then compare that cost to traditional monthly student loan payments.

2. Double check your Payment Cap

This sum is the most you’ll ever pay towards your ISA. Traditional private loans cost the original balance, plus interest, which you’ll need to calculate to determine the true cost. With an ISA, there’s a much firmer, hard cap on payments, so it’s easier to determine total max costs. But make sure to know if your cap is a lot more than you were funded or just a little more. ISA caps tend to range from 1.2x to 2x more than you were funded. Be cautious with caps that are more than 2x what was funded to you, and avoid ISAs that don’t have a payment cap at all. Some programs utilize incremental payment caps, where the payment cap increases slowly over time.  This rewards students who find early career success, by making it cheaper for them to pay off their ISA earlier in their career. Make sure to calculate what your payments might look like and determine whether the payment cap is suitable for you and your future career.

3. Understand your Payment Window

The Payment Window is how long your ISA contract lasts and is the length of time you have to pay back your required payments or Payment Cap. Think of your payment window as the total contract term. At the end of the payment window, your ISA contract expires, even if you paid back less than the amount of money you received. 

To keep your ISA fair, and to prevent any potential game playing, certain situations of voluntary withdrawal from the labor force may extend your Payment Window by one month for each month of such withdrawal.  For example, if you take a 6-month vacation, your payment window may pause during these break periods, and then resume when you are ready to re-enter the labor force

The most important thing to know about your Payment Window is whether your ISA lender counts months in which your payments are paused due to financial hardships towards your Payment Window or if your Payment Window is extended in those instances.

4. Double check your Minimum Income Threshold

The main benefit of an ISA is that your payments automatically pause whenever you’re unemployed or making less than the salary floor. The best part of Income Share Agreements is that during periods of deferment, there is no accruing interest like traditional student loans. The Minimum Income Threshold is how much you have to be making before you owe payments.

If your income drops below that line your payments are paused.  An ISA’s salary floor should reflect your expected post-graduate income. Is your threshold lower like just $10,000? Or is it something reasonable for your career, say like $40,000. For example, Lambda School’s salary floor is $50,000 because it expects graduates to get starting salaries of at least that much. Think about what you’ll actually be able to afford, depending on where you plan on living, before you sign on the dotted line. 

5. Make a note of any fines and fees

Just like with traditional student loans, there are ways to get in trouble with ISAs, if you avoid making payments. There may be some penalties for not accurately reporting your income or other scenarios with your ISA. Be sure to read and understand those possible fees and make sure you avoid any of those possible scenarios. 

If you’re considering an Income Share Agreement to cover your higher education costs, then make sure to utilize an Income Share Agreement Calculator to help you figure out what your monthly payments will cost and how much you’ll pay overall. 

If you think an ISA option might be right for you, make sure you take into account your ISA terms, expected future income, and calculate what your payments will look like in order to determine if an ISA is the best option for you.

What if my school doesn’t offer an ISA?

If you’re unmoved by existing Income Share Agreement providers, you could always take on the challenge of convincing your school to start its own program. That’s where Meratas comes in.

About Meratas

Meratas is the leading Income Share Agreement (ISA) software company, providing a full-service, turnkey, SaaS platform to design, originate, and manage ISAs. We help universities, bootcamps, trade schools, and membership programs increase enrollment and open accessibility to their programs. All through the power of Income Share Agreements.

We also help those looking to get an education, up-skill, or re-skill get into the career of their dreams. All at, generally, no upfront cost. We pair individuals looking for fresh new career with the best educational programs on the Meratas platforms to reach their professional goals. If you’re looking to break into your new career, check out our student page and we’ll help you find the job of your dreams.

Want more career advice, education news, and student success tips? Follow us on Twitter, LinkedIn, and Instagram!

Although every effort has been made to provide complete and accurate information, Meratas Inc. makes no warranties, express or implied, or representations as to the accuracy of content contained herein. Meratas Inc. assumes no liability or responsibility for any error or omissions in the information contained herein or the operation or use of these materials.

(more…)

College is not only far more expensive than it was a decade ago, but the burden of paying for it has also shifted away from the public to individual students. At the same time, the odds of graduating and immediately landing a job that rewards you have become even more difficult. 

(more…)

College still provides a strong return on investment for many students. But the risk profile of that investment has gone up dramatically with the cost of college in recent years. One way that schools are sharing the risk and reward of education with their students is through the use of Income Share Agreements (ISAs). 

With this type of agreement, students pay nothing, in most cases, until after they complete their program. Then, once a student has finished the program and becomes successfully employed using their new skills, they pay a percentage of their income for a set period of time until they have either reached the Required Payments, Max Payment Cap, or Payment Window. 

Income Share Agreements have a whole host of student benefits that are often absent from traditional private student loans. For example, there is something called the Minimum Income Floor, which is the minimum amount a student needs to earn before they begin paying back their ISA. There is also a payment window, which is the set time frame that the ISA funder has to collect all of the required payments under an ISA.

In today’s post, we’re going to take a look at the ISA student benefit known as the payment cap.

The Payment Cap

One way to satisfy your ISA is by paying the Max Payment Cap. (The most common way to pay back your ISA is by making all the required payments. Read about the different ways to pay off your ISA here). The Maximum Payment Cap limits the maximum amount of income a high-earning student is required to share. This is in place to ensure that high earners do not overpay on their ISA.

The Max Payment Cap is built into your contract and is the most you’ll ever need to pay towards your ISA. A Payment Cap is usually some amount more than the funded amount (the amount the school is fronting you for their program as part of your ISA). Once you hit your Max Payment Cap, your ISA is completed.

For example, let’s say your agreement terms dictate that you pay 10% of your monthly income over 24 required payments (read more about required payments here.) Let’s say your Max Payment Cap is $12,000. Based on your income, you would pay $500 per month to your ISA. If your income doesn’t change for 24 months and you make each of those $500 payments each of those months, your ISA would be finished. But let’s say, you’re crushing it at your job, and 10% of your income would now be $1,000 a month. If you had to make the same 24 repayments, you would pay double the amount over the course of your ISA. 

However, that’s where the max payment cap comes in. Instead of doubling all of your payments for the same 24 months, you instead would just continue making your monthly payments until the total sum of all your payments reaches the Max Payment Cap. If you pay your $1,000 payments each month, you’ll hit your payment cap in only 12 months thanks to the payment cap. You’ll pay it back a full year earlier than if you were making the 24 required payments! 

The Cap Paydown

The Cap Paydown is a feature for higher-earning students to pay off their ISA as quickly as possible. The cap paydown is a feature of our ISA design that Meratas makes available to all our partners as an option to offer to their students.  

This gives students who have an income while they are in their program the chance to potentially lower the overall cost of their ISA significantly over the course of the contract. 

Essentially, the Cap Paydown allows students to make smaller, fixed payments (usually a few hundred dollars) each month while they are still in their education program. These payments continue until they find a qualifying job and are making above the Minimum Income Threshold outlined in their ISA, at which point they then switch over to making their ISA payments. In exchange for making these payments while in their program, students receive a discount on their Max Payment Cap of either the total amount of the initial payments made or a flat amount. 

For example, let’s say your Max Payment Cap would be $15,000 in your ISA. But if your program offered a Cap Paydown and you started making $300 monthly payments during the program, your payment could be lowered by $3,000 to $12,00 depending on the terms of your program’s Cap Paydown. 

This feature is especially important for students who are confident they’ll be able to get a well paying job after graduation and know they’ll reach the Payment Cap before their Required Payments or Payment Window are up.

Meratas is the only ISA platform that offers this student benefit as an option to partners on our platform and is one of the many benefits of working with Meratas for all of your ISA needs. Ready to offer an Income Share Agreement program at your school or educational institution designed to increase student enrollment and accessibility? Partner with the leading Income Share Agreement software company that provides a full-service, turnkey, SaaS platform to design, originate, and manage ISAs. 

Schedule a meeting with one of our ISA specialists today! 

Although every effort has been made to provide complete and accurate information, Meratas Inc. makes no warranties, express or implied, or representations as to the accuracy of content contained herein. Meratas Inc. assumes no liability or responsibility for any error or omissions in the information contained herein or the operation or use of these materials.

(more…)

With student debt in America amounting to $1.6 trillion and 5.2 million student loan defaults last year, many are beginning to wonder if there’s a better way to pay for education.

(more…)

This post was originally written by Richard Price of the Christensen Institute. The original post along with his full paper can be found here.

With one million defaults on traditional private student loans every year, and $1.6 trillion in outstanding student debt, it’s clear the U.S. is in desperate need of innovative funding models in higher education. Income Share Agreements, or ISAs, stand to provide a promising alternative to high-risk traditional private student loans, as they better align the interests of students, schools, and lenders.

(more…)

Excerpts below are from the original article written by Thomas Conkling and Christa Gibbs for The Consumer Financial Protection Bureau. The full original article can be found here.

(more…)

Income Share Agreements (or ISAs) are a different form of financing that many may not be used to. Since ISAs have built-in protections and guidelines set in place to make sure students are not overpaying for their education, the Income Share Agreement journey can look different for everyone. There are also several ISA terms necessary to know in order to fully understand ISAs.

(more…)

As soon as the initial excitement of a new job starts to subside, new graduates face the daunting question: how to pay off that huge shadow of traditional student loan debt haunting them. With an Income Share Agreement (ISA), students don’t have to worry about paying back a principle or mounting interest. However, that then begs the question: How do I fully pay back my ISA?

(more…)

We know that Income Share Agreements can be confusing. They’re an uncommon way of financing that includes many terms people may not be familiar with.

(more…)