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June 8, 2020

The Income Share Agreement Journey: A Story About an ISA Student

School Resources|Income Share Agreements
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For many, ISAs can be tricky to understand. What is an ISA? In this post, let's meet Lauren and learn what an ISA was like for her.

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.

To help illustrate all the best parts of an Income Share Agreement, we thought it’d be a good idea to tell a story! Let’s meet Lauren and see what her ISA journey looks like: 

Lauren needs $20,000 to afford the multiple expenses of college. Thankfully, the school she wants to attend offers ISAs as part of their financial aid program. Lauren signs an ISA contract for the $20,000 tuition in exchange for 12% of her income for 36 months after graduation and once she secures a job. 

Because her school offers an ISA, Lauren is able to continue college and graduate without fear of the inability to pay upfront or the thought of growing interest from a traditional private student loan. Lauren can fully focus on her education, without the pressure to get a part-time job because she doesn’t have to make any payments during school.

After graduation, Lauren is unable to get a full-time job at an accounting firm like she was planning. To make ends meet, she finds a job at Starbucks. Her yearly income is $20,000, since she used an ISA to pay for college she doesn’t have to make payments.

Why? Because ISA terms include a payment floor or Minimum Income Threshold, to protect students who aren’t able to get a great paying job to support themselves after graduation. Before you begin making payments, you have to be earning more than the Minimum Income Threshold, which in Lauren’s case is $30,000.  

After 6 months, Lauren gets a job at an accounting firm, earning $60,000. Since her income is now over $30,000, she begins to share 12% of her salary with her school. ISAs are collected in monthly payments, so 12% of Lauren’s monthly payments are $600.

 Since Lauren’s repayment is calculated as a percentage of her income, she has peace of mind, knowing her obligations remain proportional if she decides to change her career path.

After a year of working at the accounting firm, Lauren is in a car accident, rendering her unable to return to work for 3 months. With her ISA program, her payments are automatically deferred and she has no need to worry about payments or building debt as she rests and recovers.

After the 3 months, Lauren finds an even better paying job, her income is now at $90,000. Since her monthly income has increased, her payments increase respectively, and her payments are now at $900 monthly payments. 

Lauren’s ISA contract states she needs to pay a percentage of her income for 36 months. But, there is another term called the Payment Cap included in her Income Share Agreement. The Payment Cap is in place so higher-earning individuals are not punished for moving forward in their careers. Lauren’s payment ceiling is 1.2x the original amount of her ISA or 24,000. Even though she hasn’t shared her income for 36 total months, the moment her payments reached $24,000 her ISA obligation is satisfied. 

Since Lauren’s income increases, she reaches the payment cap of $24,000, 34 months into her obligation. Her ISA obligation is over 2 months early!

We hope you enjoyed hearing Lauren’s story, and hopefully, this helps you further understand how an ISA works and how it can benefit you. Want to learn more? Click here to read more from our blog and get more info about ISAs and ways you can level-up your career! 

About the author

This post was prepared by the author, in her/his personal capacity. The views expressed are her/his own, and do not necessarily reflect the views of Meratas Inc.
The information contained in this site is general in nature and should not be considered to be legal, tax, accounting, financial or other professional advice. In all cases, you should consult with professional advisors familiar with your particular situation prior to making any important decisions. 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 this content. 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. Copyright 2022

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