Income Share Agreement (ISA) is one of the newest and innovative methods for students to finance their education. This financial contract has gained popularity in recent years as it offers an alternative to traditional student loans. While student loans require students to pay back the borrowed amount with interest, an ISA only requires students to pay back a percentage of their income for a limited period. In this article, we will explore what an Income Share Agreement is, how it works, and its benefits and drawbacks.
What Is An Income Share Agreement?
An Income Share Agreement (ISA) is a financing option for students seeking higher education. An ISA is a financial contract between a student and an investor, in which the investor agrees to pay for the student`s education in exchange for a percentage of the student`s future income. In other words, the student is not required to pay back a set amount of money borrowed from the investor, but rather a percentage of their future income for a certain period.
How Does It Work?
The basic premise of an Income Share Agreement is pretty simple. Students receive funding for their education from investors in exchange for a percentage of their future income. The percentage, time frame, and income cut-off are all agreed upon in the contract. Once the student graduates and starts working, they begin to pay back the investor a percentage of their income for a limited period agreed upon in the contract.
Benefits Of An Income Share Agreement
There are several advantages to opting for an Income Share Agreement, including:
1. No interest rates: Unlike traditional student loans, ISAs do not accrue interest rates, which can save students thousands of dollars in the long run.
2. No fixed repayment schedule: Students are not required to make a fixed payment each month. The repayment schedule is dependent on the student`s income, which means that students who earn less pay back less.
3. Flexibility: Students who opt for an ISA have more flexibility in pursuing their chosen career path. The repayment schedule is based on the student`s income, so they can take time off or work part-time without having to worry about making fixed payments.
Drawbacks Of An Income Share Agreement
However, there are some drawbacks to consider before deciding to go for an Income Share Agreement, including:
1. Limited eligibility: Not all students are eligible for an ISA. Currently, only a handful of schools and financial institutions offer ISAs, and eligibility may be restricted to specific programs or degrees.
2. Higher overall cost: While ISAs do not accrue interest, the overall cost may be higher in the long run, as students are required to pay back a percentage of their income for a limited period, regardless of how much they borrowed.
3. Lack of control: The repayment schedule is based on the student`s income, which means that students have less control over their finances, and may end up paying more than they originally anticipated.
An Income Share Agreement can be an attractive option for students looking to finance their education without the burden of traditional student loans. With no fixed repayment schedule and no interest rates, ISAs offer flexibility and affordability. However, students should consider the limitations and drawbacks before deciding to go for an ISA. As with any financial decision, it is essential to consult a financial advisor and read the terms and conditions of the contract carefully.