Why ISAs are better than Student Loans?

The mounting cost of higher education and advanced training remains a pivotal cause of concern in America. Reportedly, the average tuition fees have risen outrageously in the last 20 years, with an inflation rate of 4.70% each year. According to BLS (Bureau of Labor Statistics), education prices were 245.47% higher in 2020 than in 1993. It has surpassed the average hourly wages & housing prices, which triggers unaffordability. Due to the ever-increasing tuition fees, there has also been a surge in student debt which has reached $1.7 trillion in 2021.

Fortunately, there exists an alternative to the traditional student loans that can help you procure advanced training with no cost commitment. ISA or Income Share Agreement brings a new ray of hope for students to pursue a risk-free education. Let’s examine the benefits of using ISA to get higher education & training.

A synopsis of Income Share Agreement

ISA or Income Share Agreement is a contract between the school & the student. Under the Income Share Agreement, the school agrees to fund students’ educational expenses in exchange for a fixed percentage of their post-graduate earnings for a set period.

ISA is an effective way to pay for advanced training & education by sharing a percentage of your future income instead of burdening yourself with the monthly student loan installments. There are innumerable benefits of using ISA over student loans which we will discuss later in the blog.

What is the need for an Income Share Agreement?

The inflation in the cost of higher education is a matter of concern. If we do a quick statistical breakdown of the increased average tuition fees at a Private National University, Out-of-State & In-State Public National Universities, we’ll get some staggering results as given below:   

  • The average tuition fees at the Private National University have jumped by 144%.
  • The tuition fees of an Out-of-State Public National University have also hiked by 165%.
  • While the In-state Public National University’s tuition fees have grown the most by a whopping 212%.              

It has been predicted that by 2033 the tuition fees in the Public & Private National Universities will be as high as $94,800 & $323,900 per annum.

Considering the amount of undue pressure on students to pay such escalating fees, it has become indispensable to adopt the Income Share Agreement on a massive scale. ISA facilitates risk-free education, wherein the students are not liable to pay anything till they graduate and start earning. For instance, if a student loses his job or doesn’t get a higher paying job to meet the minimum threshold of ISA, his payments automatically get waived until he restores financial stability.

Benefits of ISA over the Traditional Student Loans

If you’re wondering which one is better amongst ISA vs Student Loans, let’s compare them on some common factors to understand the benefits of using ISA over student loans:

  • Greater flexibility to pay– ISA provides greater flexibility to students to make repayments. The students only need to reimburse a fixed percentage of their income once they get employed. Also, payments are deferred if the students are not earning a minimum salary threshold. In contrast, Student loans don’t provide much flexibility to make repayments. It compels students to repay their student loan installments each month with the added interest regardless of their unemployment & poor financial status. Thus, ISA is more beneficial than student loans in terms of flexibility.
  • Set duration for making payments– The maximum payment window of an Income Share Agreement ranges between 2 to 10 years. Hence, if a student fails to make all the monthly repayments by the end of the payment window, his payment obligation automatically gets terminated. However, there is no maximum payment window in student loans that bound students for years until they pay off the student loan amount.  
  • Secures students from paying excessively– There is a payment cap or the maximum payment that the student agrees to pay under the Income Share Agreement. It protects students with higher incomes from making unreasonably high payments to the school. Also, once the students pay the maximum payment cap, their ISA obligation ends. The payment cap could be 1.0x or 2.5x of the student loan amount. On the other hand, student loans often have a higher interest rate, leading to a hefty debt on the student.
  • Provides a career surety- With an ISA, schools reaffirm students that their advanced training can help them acquire the skills to land a job in their desired field or gain a suitable position. Thus, ISA adds to the school’s credibility and shows their willingness to share the risks & rewards with the students. So, one should always look for those Bootcamps that have a higher income threshold which not only empowers candidates to secure a high-paying job but also give them the flexibility to make no monthly payments until their gross income is less than the set amount. In contrast, student loans do not guarantee any career success for students, which is the reason many students remain unemployed with loads of debt on their heads.
  • Payments start when Income starts which is a win-win – It is one of the major benefits of using an ISA. ISA has a minimum threshold which refers to the minimum annual income that students need to make before making repayments. ISA does not enforce any financial burden on the students unless their annual income meets the minimum threshold. For instance, if the minimum threshold of an ISA is $40,000, a student is free from any repayment obligation if his annual income is less than this amount. However, this isn’t the case with student loans, as students need to start making monthly loan payments while pursuing their courses. If the students are unable to make payments due to financial hardships or any other issue for 270 days, their student loan officially goes into delinquency or default status. Even if Students don’t get jobs, they still have to pay their student loans which is not the case with an ISA.

Many universities, colleges, and Bootcamps facilitate ISAs to increase the accessibility of advanced training and education for students. ISA can fill the funding gaps for students as it shifts the financial risk from students to schools.

ISA is a powerful funding model that can replace student loans in the coming years. An ISA or Income Share Agreement is not a loan since there is no principal balance, accruing interest, or penalty for making fewer payments than the funded amount. Besides, the money advanced in ISA is an investment in the future earning potential of the students.

ISA differs from School to School

Many Bootcamps & Universities follows a different criterion for Income Share Agreement including, payment terms, minimum threshold and income share percentage.  

Some Bootcamps has a minimum threshold of $40,000, it means that if a candidate secures a job at a salary as low as $40,000 per annum, then he will be liable to make monthly payments.

We at Synergisticit have kept a minimum threshold of $65,000, so if the annual salary of our candidate is less than $65,000, we don’t hold any monthly payments; rather, the payments are waived for that period.  Only once a candidate starts making more than $65,000 or higher does the ISA payment start.

Another thing that one needs to check is the income share percentage offered by the Bootcamp. Several Bootcamps takes as much as 15% to 18% of the student’s post-graduate salary with a payment cap of 2.5x. Thus, the students end up paying far more than the amount borrowed with their increased annualized salaries. Therefore, it is essential to comprehend the terms of ISA before enrolling in any Bootcamp or University for advanced training. Let’s take an example to get a better understanding of ISA. For instance, if your student loan amount is $25000, where the maximum payment cap is $30,000 & you need to pay 12% of your income for 4 years with the minimum income threshold of $65,000. Here is what you need to pay as per different income levels.

Annual IncomeMonthly PaymentTotal Payment in 1st yearTotal Payment in 2nd yearTotal Payment in 3rd YearTotal Payment in 4th Year
$64,000$0$0$0$0$0
$68000$680$8160$8160$8160$5,520
$72,250$723$8,670$8,670$8,670$3,990
$76,500$765$9,180$9,180$9,180$2,460
$80,750$808$9,690$9,690$9,690$930
$85,000$850$10,200$10,200$9,600$0
$93,500$935$11,220$11,220$7,560$0
$97,750$977$11,730$11,730$6,540$0
$102,000$1,020$12,240$12,240$5,520$0
$106,250$1,063$12,750$12,750$4,500$0

Under Income Share Agreement, you’re required to pay a fixed percentage of your salary each month for up to a maximum payment cap. The above table compares monthly & total ISA payments in different levels of income. Unless your annual income meets the minimum threshold of $65000, you don’t need to pay anything.

Early Termination or Cancellation of ISA

All Bootcamps allow students to cancel their Income Share Agreement based on different terms & conditions. Have a look at the procedure of cancelation or early termination of ISA:

  • Students can cancel an ISA within a certain number of days from its effective date. If you cancel your agreement during that time, then no cost will be imposed on you & you will be withdrawn from the program without further obligations.
  • If you withdraw, or abandon your program after the specified Cancellation Period, you may be responsible for paying a portion or all of your ISA amount up to the payment cap. Students must refer to their respective agreements for complete details.
  • Students may also terminate their ISA early at any time by paying the Payment Cap in effect for such period, less all previously paid Monthly Payments in addition to any outstanding fees owed (if any). You may also be eligible for an incremental payment cap as depicted below as an example:
Contact Term (Months) Incremental Payment Cap
1 to 12$25,000
13 to 24$27,000
25 to 36$28,000
37+$30,000

Conclusion

Income Share Agreement or ISA can be a game-changing funding model to pay the tuition fees. Instead of overburdening the students with decades of debt, it offers a short-term solution that ensures students’ success. There are unlimited options for students looking to upskill with online training; however, it is difficult to find quality courses that can surely translate to higher earnings.

We at SynergisticIT, provide the option of Income Share Agreement for each of our technology upskill programs, including Java, AWS, MERN Stack, Machine Learning, Data Science, & Python. Our terms of the Income Share Agreement are flexible as we want our candidates to grow in their careers & procure higher-paying jobs.

Reach out to one of our recruiters who might evaluate if you qualify for a full or partial Installment Service agreement based on your grades in your school and check your background & skills.

If you want to achieve your career goals, reach out to SynergisticIT– The best programmers in the Bay Area…Period!