Let’s play two truths and one lie. I will go first
- I have two cats.
- I’m allergic to pepper.
- I graduated from college with about 80,000 student loans.
If your answer was # 2 – you are absolutely right! Pepper is actually my favorite vegetable (or fruit?)
I am a self-made cat woman who unfortunately graduated with a ton of college student loans.
However, the latter was not because I was irresponsible and carelessly spent my money on dumb stuff, but because I came from a low-income home. This meant that anything that did not come under grants or benefits had to be repaid through debt.
I still Pay off my debts, And I had to stop things, like buying a house or having children. So, I’m always thinking: Is there a better way to pay for college when scholarships and grants aren’t enough?
There are income share agreements. Interesting Solution
An Income Share Agreement (ISA) is a financial agreement in which you receive a fixed amount of money to pay for college in exchange for a certain percentage of your future income..
Like student loans, this money can be used for tuition and fees, but also to cover other expenses such as room and board.
How do ISAs work?
There are two ways to get ISA:
- Through your school.
- By applying directly to the ISA provider.
However, whichever path you choose, the application process will be the same. In addition to your basic contact information, you will need to provide the following information.
- Your field of study.
- The kind of degree you want to get.
- Your GPA (in some cases).
- Your expected graduation date.
- The amount you want to borrow.
- Until the date you need the funds.
After your application is approved, you will receive a letter with your ISA details. Here, you will find:
- The percentage of your income you will be expected to pay.
- Different terms available to you (the duration of your payment plan).
- Minimum income threshold for you to start paying.
Once you sign the dotted line, your funds are sent to the school and distributed to you. You do not have to make any payments until then. after the You graduate and start earning a certain amount of money.
Benefits of obtaining ISA
- They do not charge interest. except for Directly subsidized loans., Both federal and private student loan repayments start earning interest right away. In this regard, ISAs have the upper hand, because they have no interest when you are in school.
- Flexible credit requirements. One of the best things about ISAs is that you don’t need a co-signer to get funding approval. You don’t even need good credit to qualify, which is usually necessary for a private student loan.
- Short payment terms. The repayment period of student loans is 10 to 20 years. ISA offers short payment terms between 5 and 10 years.
- They can be cheaper than direct PLUS and private student loans. Direct PLUS loan (at the time of writing) Has a fixed interest rate. 6.28, While interest rates on private student loans may be approaching. 12. With ISA, you can pay 2 as less of your income. Here’s a quick example: If you earn 50K a year and have a 2% ISA, your monthly payment would be about $ 83.
- They are closed. ISAs have a limit on how much debt you will have to pay. It varies per program, but the payment amount is usually the same. Limited One and a half to two times what you actually borrowed.
- Your monthly payment can be as low as 0. If you lose your job or take a low-paying job, your ISA payments can be as low as $ 0 – which you will not receive from a private student loan.
- You will pay a fixed percentage during the payment. Once you have signed your contract, this percentage is closed for life, and can be in between. 2 And 17 Your future income depends on your contract.
Disadvantages of obtaining ISA
- Payments are difficult to estimate. Unless you have a crystal ball, there is no way to know how much you will earn in the future. The only way to estimate how much you will be paid is to use a. Comparison tool. However, this estimate should also be taken with a grain of salt, because of the salary figures they use. Wrong.
- Short duration You don’t have to start repaying both federal and private student loans until six months after graduation – the same cannot be said for all ISAs. For example, Lambda School.The ISAs have a one-month deadline, however Steroid funding. Gives students a three-month grace period.
- More binding than student loans. Student loans are available to almost any student, regardless of their seniority, as long as they are enrolled for at least half the time and are in good academic standing. But ISAs are often limited to junior and senior undergraduate students Some issuesApproval will also depend on your GPA.
- Limited funding. With Federal Direct Plus Loans and Private Student Loans, you can borrow an amount equal to the full cost of attendance as certified by the school. ISAs, on the other hand, are usually limited to more than K 25K per academic year, depending on the program.
- They are not widely available. Currently, there are less than 10 colleges in the United States that offer ISA and only a handful of independent providers, including steroid funding, A better future ahead., And Ascent loans., Which offers both traditional private loans and results-based loans (aka ISAs).
- You can pay more. Remember I said you would always pay a certain percentage of your income during your ISA period? Well, it could be a double-edged sword. Why? Because if your income increases, so will your pay.
- They are less organized. President of Justin Dredger. National Association of Student Financial Aid Administrators (NASFAA)“Because ISA is a new concept in college, they are not as strictly controlled as student loans,” he said. Therefore, there is a lot of uncertainty as to how ISA companies can proceed with late or reduced payments, and how bankruptcy courts deal with these agreements.
- Refinancing may not be an option. There may be federal student loans. Stable In one loan, with one monthly payment. Private student loans can be both stable and. Refinanced. However, not much information is available on whether ISAs can be refinanced, so this is something to keep in mind.
- You will not be eligible for pardon. With federal student loans, you can qualify. Student Debt Forgiveness After 120 consecutive payments, if you work in a qualified government agency or non-profit organization. This do not have An option if you get ISA.
ISAs vs. Student Loans, Which Should You Choose?
Borrowing money for school is a very personal decision and can have lasting consequences.
That’s why Dredger, from NASFAA, recommends eliminating your federal aid options first (directly subsidized and directly non-subsidized loans), “Basically because of all the reservations that have been made in the federal student loan programs.”
If you must choose ISA;
You have maximized your direct subsidy and direct non-subsidized federal student loan options.
Unlike directly subsidized and directly non-subsidized loans that offer. Income-based payment plans, Federal Plus loans do not offer this option, nor do private student loans. In addition, the interest rates on both Plus and Private loans may be higher than on the ISA, plus you get interest while you are in school.
You do not have a long credit history.
Both private student loans and PLUS federal loans are approved on a credit basis, not ISAs.
You don’t have a cosineer.
If you do not have a stable income or good credit, it will be difficult for you to get approval for a private student loan without a co-signer. Therefore, if you do not have someone to share the loan with, ISA may be a better option because they are not approved on a credit basis, only your future income.
To learn more about cosigners, Read our full article..
Your parents or potential signers have a negative credit history.
If your cousin has a negative credit history, both a PLUS federal loan and a private student loan may be rejected. If so, you may want to apply for an ISA yourself.
Choose PLUS Student Loans or Private Student Loans if;
You have maximized direct subsidized and subsidized loans and still need to borrow a lot of money.
ISAs typically have a payout limit of $ 25,000 or less, depending on the company, each academic year. PLUS and private student loans can be taken for the full cost of attendance.
You have good or excellent credit.
If you are working full time or part time and your credit score is 700+, then student loans can be a good option for you, as you will be able to get a lower interest rate on the amount borrowed.
Read more: What is an excellent credit score?
Your parents can take out a loan for you.
If both of your parents have no objection to taking out a loan in their own name or entering into a contract with them for you, then a private or parent PLUS loan may be a better option. You will be able to estimate your monthly payments from the beginning, unlike the ISA, which will depend on how much you earn, and secure a lower interest rate if your parents have the best credit.
However, whether you choose a student loan or an ISA, the most important thing is that you understand the terms and conditions in addition to keeping your abilities in mind. Return on investment When applying, make sure your loan is affordable.
Before you sign the dotted line.
Do your research
Have done Many complaints Some ISA companies have been sued for misrepresenting their products and engaging with other companies. Misleading methods, So make sure you check the company’s track record before signing up. You can check it out at the Consumer Financial Protection Bureau. Consumer Complaint Database. Or by looking at the name of the company Better Business Bureau..
Read everything carefully.
Pay Close Pay attention to the terms of your agreement. If something sounds ridiculous, ask the ISA provider for an explanation or talk to your school’s financial aid advisor.
Compare programs if possible.
As I discussed earlier, ISAs can be obtained through your school or an independent provider. If you choose the latter, check out one or two companies first, so that you can choose the best deal available for you.
Income share agreements can be a good option to close the financial gap when scholarships, grants, and other forms of federal student aid are not enough to cover college expenses.
They are a particularly viable alternative to private student loans, as they offer a number of safeguards against income loss and low income that private lenders do not currently have.