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.

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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.

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In a step forward for state regulation of Income Share Agreements (ISA), Illinois recently signed into law the Student Investment Account Act (Act).

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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.

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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?

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Coding Bootcamps and different educational programs specializing in design, sales, or career direction can be an intensive, fast way to break into a remarkable new career change. With coding Bootcamps, graduates see an average increase of 34% in salary in their first job after the Bootcamp.

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Finding the best financial aid when going to college can be challenging. Income Share Agreements can be an excellent way to pay for college as they keep payments affordable since your payments are linked to your income by a percentage. Federal student loans are also a popular option because they offer fixed interest rates and, generally, no credit check.

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What if, instead of borrowing money for school at a certain interest rate, you promised a percentage of your future earnings to cover the cost?

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Attending college can be difficult for many students to afford without financial assistance. With even a semester of community colleges costing thousands of dollars these days, college affordability often makes a big difference in which college you’re able to choose. Thankfully, there are several higher education loan options out there to help you pay your college bills, including scholarships, federal aid, and Income Share Agreements (ISA).

Today, we’re going to focus on federal loans. The federal loan program is robust and offers many different types of student loans. The regulations surrounding federal student loans can differ for each one as well. Though specific eligibility requirements vary, you could qualify for one or more of the following types of federal student loans for college or graduate school. But before you sign on the dotted line, it helps to know the differences between your loan options.

Below are the different types of student loans you might encounter and which one could potentially be the best fit for you.

1. Direct subsidized federal loan

These loans are for students with demonstrated financial need. The fixed interest rate for these loans is pretty low at (as of 2020) 4.53%. Similar to many other federal financial aid, the interest rate is fixed, which is especially great if you lock it in at a low rate. But, since you have to apply for a new loan every year, and the percentage does change from year to year, the rate you get on your freshman year loans will likely be different from the rate on your senior year loans.

With subsidized federal debt, the Department of Education will cover the interest that accrues on your loans while you’re enrolled at least half-time in school. For example, one year of interest on a $5,500 loan would be $277 for a class of 2019 college freshmen. If you qualify for a subsidized direct loan, the government will take care of that interest for you.

The schools to which you’ve been accepted will then detail the amount you can borrow in your college award letter.

Interest rate: 4.53% for undergraduates (2019-20 Rate)

Aggregate loan limit: $23,000 for undergraduates

Loan fee: 1.059% (Through Sept. 30, 2020)

Terms: 10 to 25 years

2. Direct unsubsidized federal loan

Unlike subsidized federal loans, a direct unsubsidized loan is also for graduate and professional students, not only undergraduate students, and loan eligibility is not based solely on financial need or merit. They’re useful if you just don’t have quite enough money on hand to pay for school but don’t qualify for financial need by government guidelines. Almost everyone is eligible for this federal student loan, as long as they’re enrolled at least half-time in school.

With unsubsidized loans, you’re on the hook for accruing interest while you’re enrolled, as well as during a grace period or while in deferment or forbearance. What’s more, the interest capitalizes when it goes unpaid, meaning that it will be added to the principal of the original loan amount.

Interest rate: 4.53% for undergraduates, 6.08% for postgraduates (2019-2020)

Aggregate loan limit: $31,000 to $57,500 (depending on your dependency status) for undergraduates, $138,500 for graduates

Loan fee: 1.059% (2019-2020)

Terms: 10 to 25 years

3. Direct Grad PLUS loan

PLUS loans, whether they’re for graduate students or parents, are unique in that they require the applicant to undergo a credit check. The Direct Grad PLUS loan, specifically, was built for graduate and professional students who have had more time to improve their credit score (unlike undergraduates entering college, who might have never held a credit card).

If you’re trying to qualify for PLUS loans but have an adverse credit history, enlisting a creditworthy cosigner can help your case. Grad PLUS loans also give the student loan borrower six months after they finish or leave school to begin making payments.

During any period when you’re not required to make payments, interest will accrue on your loan. You may choose to pay the accrued interest or allow the interest to be capitalized (added to your loan principal balance) when you have to start making payments. Your loan servicer will notify you when your first loan payment is due.

Interest rate: 5.30% (after July 1, 2020, and before July 1, 2021)

Aggregate loan limit: The cost of attendance minus any other financial aid

Loan fee: 4.236% (for loans disbursed Oct. 1, 2019, and Oct. 1, 2020)

Terms: 10 to 25 years

4. Direct Parent PLUS loan

This loan type is for biological, adoptive, and step-parents to support their dependent undergraduates.

A key difference between Parent PLUS loans and other types of loan options is that parents are expected to make payments while their children are in school, though they may request deferment during the loan application process.

The government does not offer a way for parents to transfer a PLUS loan to their children, but some private lenders do allow you to refinance a Parent PLUS Loan in a child’s name.

Interest rate: 5.30% (2020-2021)

Aggregate loan limit: The cost of attendance minus any other financial aid

Loan fee: 4.236% (2020-2021)

Terms: 10 to 25 years

5. Direct Consolidation Loan

Consolidating any of the federal student loan types above allows graduates (or dropouts) to pool multiple loans into a single loan with a single loan servicer. This means you can make a single monthly payment, too.

That payment would also likely be lower than your past loans, as the repayment period can be extended up to 30 years.

Although consolidation is convenient, it’s not right for everyone. It might give one borrower access to income-driven repayment options, but it might erase another’s progress toward Public Service Loan Forgiveness.

Before deciding to consolidate, it’s critical to consider your own situation.

Interest rate: The weighted average of the interest rates on your existing loans.

Loan fee: n/a

Terms: Up to 30 years

Federal Student Financial Aid and the FAFSA

Am I eligible for Federal Student Aid?

In order to be eligible for federal student aid there are several requirements you must meet. Including:

• Financial need
• Being a U.S. citizen or an eligible noncitizen
• Remaining in good standing on any federal student loans you already have
• Being in or accepted for an eligible degree or certificate program
• Maintaining adequate academic progress
• Review the rest of the eligibility requirements here.

How do I apply for Federal Student Aid?

Many states and colleges use the FAFSA for their financial aid programs. You can find grants and scholarships, student loans, and work-study programs through Federal Student Aid (FSA) to help pay for college or career school. Use the Free Application for Federal Student Aid (FAFSA) to access them. The federal deadline for the 2020-21 school year is June 30, 2021.

Create an FSA ID account if you’re going to submit your FAFSA online or track its status online. If you’re going to submit a paper FAFSA by mail and won’t be tracking its status, you won’t need an FSA ID.

Do I need a Cosigner?

Finding a cosigner for student loans can be tough but you almost never need a cosigner for federal student loans. There is one exception though, if you are a graduate student or parent applying for direct PLUS loans and have a poor credit history, you may not be eligible without an “endorser,” who is similar to a cosigner. So, if you find an endorser who does not have an adverse credit history, you can receive a direct PLUS Loan.

How do I check the status of an application?

You can check the status of your FAFSA by going to fafsa.gov and logging in. You can also check by contacting the Federal Student Aid Information Center.  You can also visit the FSA Contact Us page for a detailed guide listing phone numbers and other ways to reach experts about federal student aid, student loan forgiveness, FAFSA, loans and loan consolidation, and more.

What if I’ve Exhausted all my Loan Options? 

Federal loans were established to help low to no credit borrowers afford the rising costs of college. But take the time to consider each of these different loans before deciding which one’s best for you – and only you.

If you’ve exhausted your federal loan options and need additional financing, an Income Share Agreement (ISA) could be a great option for you.

If you like the idea of an ISA – is a way of borrowing less traditional private student loans – check out these schools that offer ISAs! Although this list is not extensive, if none of these schools line up with your plans, check out our student’s page for a list of even more schools.

An ISA is a terrific tool to consider as you pursue higher education. Although it can be a wonderful option for many students, it’s not the right path for every student.

Run the numbers to ensure your projected salary won’t leave you paying more under an ISA than you would have paid to borrow traditional federal and private student loans. Ensure too that you’re okay giving up some forgiveness and assistance options that you would have gotten with federal loans. It depends on the terms offered by the ISA program.

An ISA can also be an excellent solution if your school isn’t eligible for federal loans, doesn’t work with reputable private lenders, or you want to have education protections throughout paying back your outstanding student loan debt.

Choosing your financial aid is an important decision; think about where you want to be when you graduate, specifically what career you’re thinking about, and make sure to do your research before deciding on one.

Interested in learning more about Income Share Agreements or how to fund your education with one? Check out more on the Meratas blog.

An Income Share Agreement (ISA) is funding for higher education in exchange for a percentage of your income if and once you land a decent job.

ISAs are becoming increasingly common. For some, they’re a no-brainer. An ISA, for example, could help fill in the gaps for financial aid if you’ve reached federal borrowing limits or are attending a school that’s ineligible for federal or traditional private student loans. They are also ideal for students looking to upskill using a Bootcamp or specialty school where they might not have a traditional means of funding.

In some cases, ISAs are available directly from your school, who partner with companies, such as Meratas, to administer and organize the ISA. But in other cases, it may be more difficult for you to find an Income Share Agreement if your school does not directly offer one. If you’re interested in comparing your options, here are different ways to secure funding for your degree through an ISA.

Schools That Offer Income Share Agreements

All sorts of schools are joining the ISA game, including traditional 4-year colleges and universities, online-only educational institutions, and a variety of bootcamps and career training programs. Although this isn’t an exhaustive list, this will highlight some key ISA programs offered across the U.S.

Purdue University

Through its Back a Boiler – ISA Fund, Indiana’s Purdue University offers ISAs as a supplement – not a replacement – for traditional private student loans. Eligibility is limited to non-freshman students who have exhausted their federal loans for the academic year and are considering traditional private student loans or asking their parents to borrow a Parent PLUS Loan. To qualify, students must have no significant negative incidents, such as wage garnishment or bankruptcy, listed on their credit report.

Nearly 800 students have received $9.5 million in funding through the program, according to the school. It caps each student’s repayment at two and a half times what they initially received. You could use the school’s ISA comparison tool to estimate your dues.

Lackawanna College

Lackawanna College, a private institution in Pennsylvania, reserves its ISA for covering remaining tuition costs after borrowing federal student loans. The program is available to students who sport at least a 2.5-grade point average and are pursuing select majors.

Lackawanna’s alumni who take part in an ISA enjoy a federal loan-like, six-month grace period before they start paying an agreed-upon percentage of their income for the following five years or so. At the end of those years, the participant no longer owes anything, even if they haven’t repaid as much as they originally received.

Clarkson University

Clarkson University’s donor-funded ISA program is competitive, available to only 20 students per year. The private upstate New York university disburses up to $10,000 per student per school year. Members of the 2018 class who receive a four-year ISA, for example, would get $40,000 and then repay 6.2% of their income for 10 years.

About 97% of Clarkson graduates find work in their fields after graduation, according to the school.

Messiah College

Messiah College, a private Christian school in central Pennsylvania, started its pilot ISA program in June 2018 for undergraduates. Messiah offers $5,000 per year and the payment cap is 1.6x the ISA amount that students take out. Messiah students in an ISA would be expected to repay 3-3.5% of their income for 84 months once their earnings surpass $25,000 annually.

The University of Utah

In the pilot phase of its ISA, the University of Utah’s Invest in U program is limited to undergraduates who are within one year of collecting their diploma and are pursuing one of 18 majors. After accounting for gift aid like grants from your state and scholarships, these students could receive between $6,000-$20,000 per academic year.

Depending on each student’s major and the amount received, they could expect to repay 2.85% of their employer’s paycheck for between 3-10.5 years. However, they can defer their income payments while they earn less than $20,000 or attend graduate school. Check out the university’s ISA comparison tool to measure its usefulness for your situation.

Colorado Mountain College

Officials at Colorado Mountain College had a specific goal in mind when the school launched its ISA program in 2018: help undocumented students pay for college.  CMC’s tuition per year is $2,400, so their ISA program offers $3,000 per year.

Depending on each student’s situation, they could expect to repay 4% for 60 months once they are earning $30,000 (or sooner if a student pays back the total amount of the funds they received before 60 months), and the great thing about this ISA is that students don’t pay more than the amount of ISA that they take out.

Norwich University

Norwich University in Vermont became the only military college of its kind to provide an ISA option to its sophomores, juniors, and seniors, rolling out the program in the fall of 2018.

You’d have to be comfortable giving back some of your salary to attend Norwich. By 2019, 48% of the graduating class of 2017 was employed – 38% of whom worked in the military, according to the school.

Northeastern University

Northeastern University is a private research university located in Boston Massachusetts. They offer both undergraduate and graduate-level programs. Northeastern’s students distinguish themselves as some of the nation’s top creative thinkers, intrepid entrepreneurs, and motivated researchers.

Northeastern understands that each student’s and family’s financial circumstances are unique and offer a number of payment and financing options including Income Share Agreements. The funds through their ISA program are typically provided per term in alignment with the billing cycle, academic year, and terms of enrollment. Exact disbursement dates are determined by your ISA provider.  Check out Northeastern’s ISA terms here.

Lambda School

Lambda School has built a curriculum designed to get you hired. They asked hundreds of top tech companies what specific skills they look for in candidates and then designed their lives and remote programs to include learning activities that help you master each key skill.

With Lambda’s ISA, they cover all of your $30,000 tuition in exchange for 17% of your income for 24 months, but you only start making monthly payments once you’re earning $50,000.

Make School

For some entering the computer science field, ISAs can prove useful. Many coding bootcamps and schools aren’t eligible for federal student aid in the first place, so ISAs are a way to fill the void of funding.

That’s the case at Make School, which claims to be the first start-up-style school to offer bachelor’s degrees in applied computer science. Here, you could finance your education with either a partial ISA (worth $35,000) or full ISA ($70,000): With a partial ISA, you repay 20% of your gross salary for 30 months. With a full ISA, you repay 20% of your gross salary for 60 months.

The school also offers a $1,500-per-month ISA for living costs that would be repaid from 5 to 7% of your income over 10 years.

Awesome Inc

Awesome Inc is a 16-week bootcamp that offers an online intensive training program for aspiring software developers based in Lexington, Kentucky. With over 500 hours of hands-on training, students will gain experience while building ten+ projects using HTML, CSS, JavaScript, web frameworks, GitHub, Agile, and more. The program is aimed at beginners, and students learn HTML, CSS, JavaScript, web frameworks, GitHub, Agile, and more. The coding Bootcamp is designed to feel less like school, and more like the first 3 months on the job. With their Income Share Agreement program, you can go to Awesome without any upfront payments! Check it out here. 

Redwood Code Academy

Redwood Code Academy offers software development bootcamps for either 12 or 24 months in either New York, San Francisco, or online. Redwood Code Academy covers full-stack software development, with a focus on web applications, but also includes mobile applications, desktop applications, and cloud services. The Academy focuses on real-world skills training by helping students learn the fundamentals of full-stack development.

Redwood Code Academy also provides students with career guidance including resume prep, optimization of LinkedIn and Github profiles, mock job interviews, and introductions to local recruiters and employers in Redwood’s hiring network. Redwood is powered through Meratas to offer an ISA to their students. Check it out here! 

Wyncode

This bootcamp offers full-time and part-time Full stack development, front end web development, digital marketing, and UX/UI design programs in Miami, Florida. The program is 10 weeks full time and 12 weeks part time. 

Wyncode’s Income Share Agreement program allows three candidates in every cohort to enroll in a full-time Wyncode program with no up-front tuition costs. Wyncode’s Income Share Agreements are granted to candidates that have a financial need. ISA recipients can pay back tuition once you’ve landed a job making $40,000/year or more. ISA applications are open for our full-time programs: Full Stack Web Development and UX/UI Immersive. 

Insight Data Fellows

Insight is a seven-week professional training fellowship and data science program designed to be your bridge to a thriving career. Applicants should have a background in Physics & Astrophysics, Mathematics & Statistics, Neuroscience & Bioinformatics, or Engineering & Computer Science, as well as their PhD. Students are mentored by employees of top tech companies, who then hire graduates as data scientists and engineers. Insight’s ISA is designed to lower the barrier of entry to making career transitions, allowing Fellows to join the program without requiring any upfront payments. You can find an example agreement here.

 Holberton School

 Holberton School is a two-year software engineering school that trains individuals to become Full Stack Software Engineers with courses in full stack web development, machine learning, augmented and virtual reality, and algorithms.  The school’s mission is to train the next generation of software developers through 100% hands-on learning. The bootcamp is broken into three different components. Students complete the 9-month Foundations school then a 6-month internship followed by a 9-month Specializations course. Their curriculum focuses on collaborative, project-based learning with no formal classrooms or teachers. Holberton’s students have been hired by the world’s leading tech companies. They also offer their students Income Share Agreements to fund their education.

Companies That Offer Income Share Agreements  

A company that offers ISAs means that any student can apply with them and use those funds for any school, regardless of whether that school offers an ISA. You would apply with the company for a certain ISA, they would then disburse those funds to you, and then you could use those funds for your school or program. For now, only a few private companies provide ISAs directly to students – Blair, Lumni, and Align are among them – although more are expected to join. Edly and Tradeup also provide direct to consumer ISAs.

As you review these ISA providers, compare terms such as income threshold and repayment cap, just as you’d judge traditional private student loans by their interest rate and repayment term. By looking at the income share terms, you can help ensure you land an ISA with the company that best fits your needs.

What if My School Doesn’t Offer an ISA?

That’s where Meratas comes in.

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 then now! Click here to schedule a call with one of our ISA specialists and get your ISA program up and running today.

Are you a student and don’t have an ISA option at your school? Want one? Let us know here so one of our ISA specialists can reach out to your school!

Ensure an ISA is a long-term plan for your degree

If you like the idea of an ISA – as a way of borrowing less  traditional private student loans  – check in with the schools above. Although this list is not extensive, if none of these schools line up with your plans, check out our student’s page for a list of even more schools. (Please note these ISA statistics are as of August 2020 and are subject to change in the future.)

Before you decide, however, note that not all jobs or training paths are the correct ones for an ISA – take a look at our suggestions for some fields that are a better fit for this type of funding.

If an ISA sounds intriguing, take a look at some of the pros and cons. Interested in more ISA programs? Check out our student’s page for a full list of schools and programs offering an ISA through Meratas!

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