College is far more expensive than it was a decade ago making it difficult for some to afford higher education. College still provides a strong return on investment for many students — but the risk profile of that investment has gone up dramatically. But we are starting to see a growing number of colleges and universities stepping up to share some of the risks and rewards with their students. 

One way that schools are sharing the risk and reward of education with their students is through the use of Income Share Agreements (ISAs). These allow students to pay nothing upfront in exchange for a percentage of their gross income for a fixed time once they graduate and are employed making above a certain, agreed-upon income. 

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 payment cap is in place to ensure that high earners do not over-pay on their ISA. 

The Max Payment Cap is built into your ISA 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 ISA terms dictate that you pay 10% of your monthly income over 24 required payments (read more about required payments here.) 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. 

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 Incremental Payment Cap

The Maximum Payment Cap limits the maximum amount of income a high-earning student is required to share. Incremental Payment Caps give students even more options and benefits in paying off their ISA. Incremental Payment Caps are designed to reward students by providing an incrementally lower payment cap year over year for students to pay off their ISA at lower cap rather than letting the contract go full-term.

For example, if you sign an ISA to borrow $8,000 let’s say your Max Payment Cap is equal to $15,000. This is the normal payment cap, the most you would ever pay towards your ISA. But with an incremental payment cap, the payment cap would be lower in the first year and incrementally increase to the full cap over the course of four years. Let’s say that your payment cap for year one was also $8,000. That means, that if you made extra payments towards your ISA or earned enough to pay $8,000 towards your ISA in the first year, you would pay nothing more than the tuition amount! Can’t pay that $8,000 in the first year but still want to take advantage of the incremental payment cap? In this example, let’s say that the payment cap for year two is $10,000. This means if your total ISA payments reach $10,000 in those first two years, your ISA is still considered satisfied even if you haven’t reached the total payment cap of $15,000 or made all of the required payments.

The Incremental Payment Cap gives students incentive to pay off their ISA quicker instead of holding off on paying it down. The incremental payment cap will continue to get bigger over 4 years until it reaches the overall payment cap of $15,000. 

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. If you’re interested in offering an Income Share Agreement at your program, click here to schedule a meeting with one of our ISA specialists.

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.

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The higher education system in the U.S. was already difficult enough to afford for many before COVID-19, and the pandemic has only worsened the problem.

As a result of the crisis, many low-income students dropped out of college this past fall and thus, were less likely to apply for federal student aid. This points towards student’s uncertainty about whether to continue their higher education during COVID-19. 

Surveys have also shown that as many as 40% of higher-income families who did not previously plan to apply for federal financial aid now intend to do so, which has made many wonder if the federal student aid program could run out of money.

Students watching the pandemic play out have every reason to be cautious about taking out additional traditional loans to pay for college. Especially with the job market’s uncertainty at the moment, a new bill that comes each month no matter what could sound like a risky idea. 

Income Share Agreements (ISA) could be a good alternative to traditional private student loans. With an ISA, a student’s cost of education is deferred. Once they graduate and earn a job making over a certain threshold, the student then repays a fixed percentage of their gross income for a predetermined amount of time. Since their payments are linked to their income by a percentage, if the student’s income drops, so do their payments. If the student loses their job for any reason or if it falls below a certain threshold, their payments are paused with no penalty and no interest accrues while in deferment. (Read more about the benefits of Income Share Agreements here.)

So how have Income Share Agreements helped both schools and students during this pandemic?  

Income Share Agreements Offer Unique Consumer Benefits

During economic hardships such as COVID-19, students with federal loans may still see interest continue to accrue, even if their payments are paused. Though some private student loan providers have offered relief during the pandemic, the exclusion of private loans from the CARES Act—which put federal loans in forbearance until 2021—left many borrowers without a safety net.

With an ISA contract, no interest accrues if your payments are paused. 

Here at Meratas, we’ve seen many students take advantage of the deferment process in a time where many have lost their jobs. Schools offering ISAs give students peace of mind. If there are economic hardships that are out of the student’s control that results in a job loss, they know their payments will be paused.

Anytime the student’s income drops below the Minimum Income Threshold, he or she will pay nothing until their income rises again. The benefits that ISAs offer provide a safety net for students while they find work. 

Take for example Andrew Hoyler who used Purdue University’s “Back a Boiler” ISA program to go through the professional flight program in 2017. Now a pilot for PSA Airlines, he has been making payments on his ISA for about 30 months.

“Starting pilot pay is not very high, so I knew I would not have much discretionary income my first few years after graduation,” Hoyler said. “ISAs provide a safety net if I find myself out of work. If I reach the end of the payment term before I finish paying things off, the ISA is forgiven with no questions asked.”

Since the airline industry was rocked by the COVID-19 outbreak Hoyler is grateful to have that safety net now. “The ISA is giving me a sense of relief. If I find myself furloughed, my payments stop with zero interest,” he says.  

Graduate Savannah Williams agrees, stating her ISA with Purdue University gave her “peace of mind” that she could enter the workforce without carrying any accruing interest.

ISAs have given students in programs from nursing to piloting, peace of mind because they only pay if their education translates into a paying job. 

Income Share Agreements Help Those Looking for Career Changes

With unprecedented unemployment stemming from the coronavirus pandemic, many turned to Bootcamps to upskill or enter a career that was “pandemic proof. Income Share Agreements gained traction at online skills training programs, including many coding bootcamps such as Lambda and Holberton School. According to a 2019 survey by Course Report, 17 percent of boot camp graduates in 2019 used an ISA or some other form of deferred tuition.

Because there is no federal student loan program for trade schools, bootcamps, or some vocational programs, students without the credit history to get approved for a private loan are often excluded. But Income Share Agreements open the door to bootcamps such as coding or UX design for these students.

For example at Lambda School, their students don’t pay anything until they get a job making at least $50,000 a year. This is in line with the average salary for a coding boot camp graduate, nearly $67,000, according to this Course Report survey. Lambda also promises to help students “hunt down jobs, nail interviews, and negotiate salary.”

The jobs students can get after programs like these are every bit as high paying as the college graduate jobs. However, there are few federal student loans available for these programs, but ISAs change that completely. 

ISAs help skills training programs signal to prospective students that they stand behind their product by having skin in the game.  

Income Share Agreements Help Break Down the Barrier to Higher Education

The Student Borrower Protection Center reported that outstanding traditional private student loan debt grew 71% in the last decade, outpacing auto loans, credit card debt, and mortgage debt. For many families, the economic pinch will make it even more difficult to qualify for private financial aid. 

The private student loan market is dependent on FICO scores and cosigners, so if you don’t have parents with great credit scores that are willing to cosign for your traditional private loan, you’re likely not going to get approved for a private student loan.

There are even students with 700 FICO scores (normally high enough for approval at a good interest rate) being quoted 18-19% interest rates on their loans for college or being rejected outright if they don’t have a cosigner.

In other words, amid uncertain economic times, the barrier to entry into higher education has gotten even higher. News of these trends has spread to universities. A recent survey of university presidents from Inside Higher Ed found that 90% of respondents are concerned about a long-term decline in overall future student enrollment. 

Using Income Share Agreements, we can open the doors to higher education to millions of Americans that either went to college and dropped out because of lack of availability of traditional loans, or that never went in the first place.

By utilizing ISAs, programs have seen higher enrollment, improved retention, and accelerated completion.

Income Share Agreements are making headway in the education finance world. Being a financing option that can withstand economic uncertainties such as a pandemic makes them a good option for students and schools alike. 

Meratas

Meratas provides a full-service SaaS Platform for Schools and Skills-Training Courses to design, administer, and service custom ISA programs. We help institutions create impactful ISA programs designed to promote student accessibility and increase enrollment. 

Our programs are intended to incentivize students, schools, and capital providers to work together to promote and finance only the best educational programs that lead to more successful careers.

If you’re interested in offering an ISA option at your school or program that has been proven to increase student enrollment, there’s no better time to offer one than now! Click here to schedule a call with one of our ISA specialists and get your ISA program up and running 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.

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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.  But we are starting to see a growing number of colleges and universities stepping up to share some of the risks and rewards with their students.

Income Share Agreements (ISAs) are emerging as an excellent alternative to traditional private loans. 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.

ISAs have student benefits built-in to help students through tough times that are often absent from traditional private student loans. Besides the absence of growing interest and generally no upfront payments, a significant benefit of Income Share Agreements is the fact that there are certain instances when your payments are paused or deferred. If the student is making less than a certain amount (the Minimum Income Floor) they don’t have to make payments.

ISAs are a win-win scenario for everyone involved. By offering an option to students to pay for tuition through an ISA, providers can offer education to students, no matter their financial background, and benefit by increasing the range of students they are able to serve. Students benefit by gaining career skills without having to make a large initial investment.

Income Share Agreements help students so they generally don’t have to pay anything until after they’re graduated and earning over a set income.

Let’s take a look at the student benefits Meratas offers to all of its partners as options to offer to their students on their platform.

The Income Share Percentage Discount

The Income Share Percentage is the fixed percentage of your monthly pre-tax income that you agree to share during your contract term. Income shares can range from 2.5% to as high as 17.5%.

The Income Share Percentage discount with Meratas allows schools to offer students various discounts on their ISA payment percentage for completing milestones or doing certain things such as enrolling in auto payments for their ISA, taking online classes, etc. It’s up to the partner program on what they want to offer. If a student does one of these things, they receive a certain percentage discount off their ISA.

For example, if you would like to incentivize your students to enroll in auto payments for their ISA, you can set up an ISA percentage discount. So, if a student has a 10% ISA but gets a 1% discount if they enroll in auto-pay, they now only need to share 9% of their income instead of 10%.

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 potentially 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.

The Incremental Payment Cap

The Maximum Payment Cap limits the maximum amount of income a high-earning student is required to share. Incremental Payment Caps give students even more options and benefits in paying off their ISA. Incremental Payment Caps are designed to reward students by providing an incrementally lower payment cap year over year for students to pay off their ISA at lower cap rather than letting the contract go full-term.

For example, if you sign an ISA to borrow $8,000 let’s say your Max Payment Cap is equal to $15,000. This is the normal payment cap, the most you would ever pay towards your ISA. But with an incremental payment cap, the payment cap would be lower in the first year and incrementally increase to the full cap over the course of four years.

Let’s say that your payment cap for year one was also $8,000. That means, that if you made extra payments towards your ISA or earned enough to pay $8,000 towards your ISA in the first year, you would pay nothing more than the tuition amount! Can’t pay that $8,000 in the first year but still want to take advantage of the incremental payment cap? In this example, let’s say that the payment cap for year two is $10,000. This means if your total ISA payments reach $10,000 in those first two years, your ISA is still considered satisfied even if you haven’t reached the total payment cap of $15,000 or made all of the required payments.

The Incremental Payment Cap gives students incentive to pay off their ISA quicker instead of holding off on paying it down. The incremental payment cap will continue to get bigger over 4 years until it reaches the overall payment cap of $15,000.

Painless Deferment

In order to defer traditional student loans, you must meet specific eligibility criteria and have deferment time available. Traditional student loan deferment can pause your monthly loan payments, often for a maximum of three years. But, interest will continue to accrue and make it more difficult to complete paying off your student loan in the long run.

But with your ISA, you can defer paying back the percentage of your income due to:

• Unemployment
• Earning less than your Minimum Income Threshold. (The Minimum Income Threshold is a certain amount  of your income that you have to earn over in order to make payments.)
• Medical leave
• And possibly other extenuating circumstances that impact your monthly income

Read the full list of when your payments are deferred.

In order to defer your payments with Meratas, you will need to submit your latest pay stub or termination letter along with a quick one-page form to fill out, which can take as little as three minutes to complete.

Then, for every month where you meet the deferment requirements, your payments will continue to be deferred until you start a new job, start earning more, finish school, or recover!

Meratas is the only ISA platform that offers these unique student benefits 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?

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 access 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 a fresh new career with the best educational programs on the Meratas platform 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 career 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.

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