Understanding Income Share Agreements: A New Model for College Financing

Paying for college often means turning to student loans, with over a third of first-time undergraduates relying on them, according to the National Center for Education Statistics. But student loans aren't the only option. Income share agreements, or ISAs, offer an alternative way to fund your education without taking on traditional debt.

With an ISA, you agree to pay a percentage of your future income for a set period of time instead of interest accruing. Here's how ISAs work, their pros and cons, and what to weigh before committing to one.

What is an income share agreement (ISA)?

An income share agreement, or ISA, is a way to fund your education where a lender provides up-front money for tuition in exchange for a percentage of your income after graduation. These are sometimes referred to as deferred tuition plans or “pay it forward” plans.

ISAs don't accrue interest, and payments only begin once you've completed your program. At that point, you'll pay a portion of your income to the lender each month for a set time frame, such as 10 years.

“Typically, the income share rates are somewhere between 2% and 10% of the student's future salary,” says Stacey MacPhetres, senior director of education finance for EdAssist by Bright Horizons.

You can secure an ISA through private lenders or, in some cases, directly from colleges, universities, or trade schools. However, ISAs are often restricted to certain degree programs or fields of study. They're more common at schools that don't qualify as Title IV institutions, meaning they aren't eligible for federal student aid.

“ISAs typically have a minimum income threshold and some institutions may require a minimum GPA or limit ISA's to certain major fields of study,” says MacPhetres. “Some ISA funding organizations may also run a credit history to determine eligibility.”

Current student loan rates

How do ISAs work?

While income share agreements may seem similar to student loans, they operate under entirely different rules. One key distinction is the salary threshold — you won't make payments until your income exceeds a certain amount.

“Payments are based on a set percentage of income, as long as earnings are above the threshold set by the lender based on several factors, like year in school and field of study,” says Sara Parrish, president of CampusDoor, a private student loan platform. “If your income falls below the threshold, payments are not required.”

ISAs also come with built-in protections. The percentage of your income that goes toward payments is fixed, and there's a repayment cap to limit the total amount you'll repay. This cap might be a flat dollar amount (e.g., $20,000), a multiple of the ISA amount (like 1.5 times the funding you received), or an effective annual percentage rate (APR). For example, an APR cap of 10% would mean you stop repaying once your total payments equate to 10% interest, as if the ISA were a traditional loan.

Finally, ISAs have a repayment window — a set period during which payments are required. After this time frame, even if you haven't fully repaid the ISA, your payment obligation ends.

Check Out: 12 Ways To Pay for College Without Loans

Pros of ISAs

One of the biggest benefits of income share agreements, compared to traditional student loans, is that they don't accrue interest. However, this doesn't guarantee lower overall costs — it depends on how much you earn after graduation.

ISAs also offer “protection against low-income years,” Parrish says. This means if your income is low, your monthly payments will be, too.

They can also be easier to qualify for than other financing options. “ISAs can be beneficial for those entering lower-paying fields and for students unable to secure traditional loans,” adds MacPhetres.

Cons of ISAs

As with any financial product, ISAs come with some risks, too. For one, you could find yourself paying more than you would with other financing options, particularly if you enter a high-earning career.

“For an ISA, the amount you repay is entirely driven by your income,” Parrish says. “If you expect to do quite well, you could end up paying back more than you would pay with a traditional loan.”

ISAs also aren't widely available, and they're largely unregulated. While the Consumer Financial Protection Bureau issued an order in 2021 indicating ISAs are akin to private student loans, there has yet to be a regulatory framework created to properly oversee these agreements.

“A bill was proposed in 2022,” says MacPhetres, “but it has not gone forward toward resolution.”

Is an ISA right for me?

An income share agreement might be a good fit if:

• You're pursuing a lower-paying career: ISAs offer flexibility in repayment if your income remains below a certain threshold.
• You can't qualify for traditional loans: ISAs may be easier to secure if you're not attending a Title IV school, or lack a strong credit history or a cosigner.
• You want to avoid accruing interest: ISAs don't charge interest, which can make payments more predictable.