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Income Sharing Agreements: A New Way to Pay for School?

ISAs are on the rise -- will they impact how you pay for college?

By Kathryn Knight Randolph

March 29, 2019

Income Sharing Agreements: A New Way to Pay for School?
It’s a fact that students and their parents are willing to do anything to pay for college. Throughout the years, students have applied for financial aid, searched for countless scholarships and took out an overwhelming amount of student loans. However, the rate at which student loan debt continues to increase is relentless; and with that, colleges, educators and investors are looking for ways to change the landscape. A new alternative for paying for school is gaining traction, with one school taking it on as the only way to pay tuition. It’s referred to as an income sharing agreement (ISA); and simply put, students are able to borrow money to pay for school while they attend with the expectation that they will pay a percentage of their income back to the school after graduation. Earlier this year, The New York Times highlighted the Lambda School, the first of its kind to offer students a paid education with an income share agreement upon graduation. The agreement stipulated that graduates must earn at least $50,000 per year in order to begin collecting 17% of their income, with total tuition capped at a maximum of $30,000 (i.e. no one would ever pay more than $30K total). What’s more, if graduates were NOT making at least $50,000 per year and did not find employment, they did not have to pay back the amount owed. Purdue University offers a similar income share agreement. It’s meant to replace Parent PLUS Loans and Private Student Loans, which typically have higher interest rates. Payments are adjusted according to income; however, there is a minimum income threshold as well as a maximum payment cap. Students are contracted to make payments for a set number of years. If there is still a balance after the agreed-upon time, student borrowers do not have to continue payment. According to The New York Times, investors and former student aid professionals have started the Education Finance Institute, which will help colleges and universities draft and implement ISA agreements. Other schools that offer income share agreements include Colorado Mountain College, Allan Hancock College, Lackawanna College, Clarkson University, Norwich University and Messiah College, as reported by U.S. News. But not all income share agreements are created equal. Each school is able to set their own terms and stipulations. Ultimately, income share agreements are viewed as investments in students; and while they are not mainstream, they could become just as common as students loans and scholarships within a few years’ time. If you’re curious whether or not the college you plan to attend offers ISAs, check with the financial aid office. Just like schools are making an investment in students, you are investing in your own education. That’s why it’s so important to do your due diligence before committing to a school. As you search for schools, research the cost and the amount of financial aid required to pay for tuition. Consider all of the options you could utilize in order to make payments work, including out-of-the-box ideas like income share agreements.

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