Income share agreements (ISAs), student loans, scholarships, and grants…the various ways to fund your education can seem overwhelming and you need to know what you’re getting into before signing on the dotted line — we got you, fam.
Tech schools and coding bootcamps are leading the way in providing new and innovative ways to finance education. The income share agreement model is one of the most novel solutions recently introduced to students.
Conversations about money can be hard and murky at best as we are collectively not used to having them. Ever filled out the FAFSA? Yeah, I blocked it from memory too. If you’re considering an income share agreement, there are a few things you should be on the lookout for. We’ve worked it down to a couple of pages, but feel free to take a break in between all the money jargon.
What’s an ISA?
In the simplest terms, an ISA is a contract between you and an institution wherein you receive funding for an educational program in exchange for a portion of your post-grad salary for a set period of time.
Isn’t that a student loan?
Nope. ISAs are different from traditional student loans for a few reasons. Student loans are usually offered by the federal government or private lenders. ISAs are offered directly through your educational institution’s ISA provider.
Instead of paying interest on the money you borrowed (like you would with a student loan), you pay a percentage of your post-grad income for a set period of time or until you reach your payment cap (whichever comes first).
Essentially, the ISA is like a deal between you and the institution. You’re interested in benefitting from their product (an education) for which you wouldn’t pay unless you achieve the outcome of that product (a job). In this way, ISAs incentivize the institution to help you get to that outcome.
What should I look for?
To ensure you’re getting into an ISA that works for your unique needs, lifestyle, and future goals, you should consider the following variables.
The Type of ISA
Institutions touting ISAs will typically offer a full or hybrid/partial ISA. A full ISA will cover the full tuition amount, while a hybrid or partial ISA will cover part of the tuition cost. If you choose a partial ISA, you would pay in cash or with another type of funding out of pocket and cover the remaining cost with the ISA. Evaluate your personal needs and decide which option makes the most sense for you. If you have the cash sitting around (we see you, Money Bags), a hybrid ISA could save some money and shorten your repayment term.
Once you’ve decided on the type of ISA you want, you need to consider the repayment term up for offer. According to Nerdwallet, ISA repayment terms are typically between 2 and 10 years. At Kenzie Academy, our ISA repayment term is 48 months in a 96-month window for a full ISA or 24 months in a 96-month window for a Hybrid ISA. The shorter the repayment term, the better. Why? A shorter repayment term means you’ll be paying back your ISA for less time (duh) but also it means you’ll save money in the long run. If the ISA contract you’re considering is going to have you making 10 years of payments, you may want to look at other options.
Income Share Percentage
The income share percentage refers to the percentage of your income you will pay back during repayment. Kenzie’s ISA percentage is currently 13% and your payments adjust over time to scale with your salary, which brings us to our next factor to consider…
The salary floor is the minimum amount of money you have to be making before repayment begins. This is another way ISAs differ from student loans and a great way to ensure you won’t have to make payments you can’t afford. At Kenzie, our salary floor is $40,000. If you’re not making this much at any period of the repayment window, you won’t have to pay a dime during that period. When you’re making over $40,000 again, payments will resume. This feature of ISAs keeps the focus for you and your school on outcomes!
The payment cap is the highest amount you could pay back on your ISA. If you hit this number before you reach your repayment term then you’ve finished making payments. You should compare the payment cap to the amount you originally borrowed so you can determine if an ISA is a good option for you.
Now that you know the basics of the income share agreement you’re considering, it’s time to get into the nitty-gritty. Find out if the ISA provider will offer any grace periods for job loss or other life events. The last thing you want is to be stuck making payments if you’re unable to put food on the table (and don’t forget to refer back to the Repayment Floor section of this post to help with that too).
This is the most important factor, in our humble opinion. When you’re shopping for educational programs, you want to be sure the program is going to set you up for longterm success. This means you need to do your research, ask questions, and really sniff out if it’ll be a good fit for you and your goals. Don’t stop on the school’s website though. Do your due diligence by looking for reviews from former students on message boards and social media. Are they mostly positive or negative? Are its graduates finding success in the field? If you’re going to take out an ISA with a school, you need to know the education will be worth it.