Income Share Agreements: What Are They, and Are They Worth It?
Many educational institutions are adopting income share agreements, also known as ISAs, as part of their finance structures. The result is that students can worry less about tuition while they are trying to focus on their studies. This alternative to student loans is a popular choice with coding bootcamps.
In this article, we will do a deep dive into income share agreements. You will learn what they are, how they work, who offers them, and if they are right for you. The most important thing to know right off the bat is that income share agreements offer unique benefits that anyone can use to succeed in a tech career.
What Is an ISA?
An income share agreement (ISA) is a form of equity financing for education in which tuition is independently funded by a third-party individual or organization on behalf of a student. This is done in exchange for a percentage of the student’s future earnings.
ISAs are legally binding contracts between two parties. There is the ISA provider who covers tuition or academic cost, and there is the student, who agrees to pay a percentage of their future income over a period of time.
Unlike other traditional forms of student funding with rigid payment structures, income share agreements are flexible. You pay a percentage of your monthly income after graduating college or an educational program. ISAs are mostly accessible to students who attend coding bootcamps.
History of Income Share Agreements
ISAs can be traced to Milton Friedman’s 1955 essay, “The Role of Government in Education.” He stated that it would be ideal for institutions or third parties to finance someone’s education in exchange for a percentage of their future earnings. This is an early idea of an ISA, and it has since grown into what it is today.
The Student Success Act of 2014 set the legal precedent for the growth of innovative private financing options for students, including the ISA scheme. In 2016, Purdue University was the first major US research university to successfully offer ISAs to its students, after Yale failed to get its undergraduates to adopt its Tuition Postponement Option in the 1970s.
Who Is Offering ISAs?
Some coding bootcamps that have adopted the ISA financing scheme include Lambda School, Make School, App Academy, Ironhack, General Assembly, Thinkful, Coding Dojo, Microverse, and Prehired. Income share agreements work best with coding bootcamps because they are career-oriented.
Colleges that have adopted the ISA scheme are Purdue University, North Eastern University, Clarkson University, Messiah University, University of Utah, and Robert Morris University, to name a few. Private organizations that have adopted this form of financing for students in higher learning include Blair, Edly, Defynance, Chancen, Leif, Ursa, and Vemo Education.
How Do Income Share Agreements Work?
The ISA Protection Act of 2019 places caps on the percentage of a student’s income that may go towards repayment of the ISA fund. The bill provides a minimum income threshold, under which the required payment is zero. It also establishes limitations on the length of these agreements.
In general, you only start paying back your ISA after you graduate, and more specifically, after you pass an income threshold. If you lose your job at any time after graduating, you can stop paying the ISA. The payments you’ll be expected to make will depend on your ISA terms, which are decided by your school and your projected salary.
Most educational institutions waive payments if your annual income is below $25,000. Others will prioritize students whose field of study is likely to yield large earnings in the future. That’s because the amount offered as aid may not be recovered if the student goes into low-paying fields of study.
Income Share Agreement: Pros and Cons
ISA schemes have gained considerable recognition since their rebirth in 2016. However, there are many students, schools, and organizations who are still unclear about their purpose. To provide clarity, we’ve come up with a list of the pros and cons of income share agreements.
Advantages of ISAs
- Flexibility: The ISA scheme provides flexible payment methods. You don’t have to start paying until you have finished your education and gotten a job that meets the qualified ISA requirements. This means you can focus on your education without worrying about costs.
- Job Security: Students who partake in this scheme are usually assisted by their ISA providers in securing jobs because they don’t want to lose their investment. Some educational institutions, like coding bootcamps, even offer job guarantees to students as incentives to attract students to their programs.
- Affordable Rates: The rates for ISA schemes never exceed 20 percent. Some schools, like Purdue, even put the figure at or below 15 percent. That way, students are inclined to accept the terms of payment, because regardless of their future salary, their rate remains unchanged. Rates can be as low as two percent.
- No Credit Necessary: Unlike traditional loan schemes, ISAs don’t emphasize a student’s credit score. Whether or not you have a bad credit score, you can still participate in the scheme. The absence of discrimination is a major reason for its popularity and acceptance.
- No Guarantors: Traditionally, bank and private loans schemes require the presence of guarantors or collaterals before you qualify for a loan. ISAs bank on the future income potential of the candidate. This allows everyone a chance to participate since the outcome can somewhat be predetermined.
Drawbacks of ISAs
- Risk: There are no guarantees for either party. However, the financier bears more risk because the student is protected by law. Even when the student gets a job, they don’t make payments until their income is above the approved income threshold. If they don’t make enough money, they don’t have to pay.
- Encourages Mediocrity: Some students might see an ISA as a luxury rather than an opportunity and may choose to avoid making payments altogether. The security that comes with the scheme may not motivate students to create above-average lives for themselves.
- Not a Solution to Student Loan Debt: An ISA doesn’t solve the student debt crisis. Regardless of how it’s perceived, students who partake are still under a payment obligation with their ISA providers. The ISA provider is simply deferring their payment to a later time when it has probably yielded more returns.
- Can Be Unfair: The repayment system doesn’t favor everyone. Two students graduating with the same major and the same percentage rate may have different income rates, which results in them paying different figures. The more your income increases, the more you’ll pay during the payment period.
- Hard to Find: Many schools are yet to offer this scheme as a standard financing option for students. Apart from coding bootcamps, many education providers don’t offer it as a financing option to their students. Those who do often sideline low-paying fields.
Alternative Ways to Pay for Your Coding Bootcamp
Coding bootcamps are alternative forms of learning that equip students with innovative and marketable tech skills through specialized courses. However, these courses are not cheap, and they are usually not eligible for federal loans and aid. We have compiled a list of alternatives to finance your education other than ISAs.
Private Student Loans
Private student funds are a popular means of funding courses in coding bootcamps. These are funds made available to students at an interest rate to be repaid within an agreed period. It is a quick source of funding, and repayments are made in installments over a given time. However, they require guarantors or collateral and will depend on your credit score.
Coding bootcamps often offer scholarships to qualified candidates. Most coding bootcamp scholarships are for specific demographics like women, low-income students, high school graduates, and students from underrepresented groups. However, it’s not always full coverage. A scholarship could be a slight deduction in tuition and not available for everyone.
Employer Sponsorships and Fellowships
Individuals and organizations can offer monetary rewards to employees or students who want to specialize in a tech field. Often, the selected candidate has a higher chance of securing employment with the organization or getting mentored after graduation. However, this option is not popular amongst coding bootcamps.
Crowdfunding is the use of small funds from a large pool of anonymous donors to finance a project. Some platforms, such as WeFinance, help students with crowdfunding their tuition. It takes time, commitment, and creativity to raise the funds. The advantage of this option is that it is loan-free, so you won’t be financially indebted.
This provides options for students to pay their tuition fees in intervals over a period of time. Some coding bootcamps allow monthly payments for students who cannot pay upfront. This is popular with working professionals looking to switch careers. There’s no debt to be cleared, and it’s affordable. However, it can be a burden on the student while learning.
The GI Bill assists veterans with paying for college and training programs. To qualify for support, you have to have some sort of affiliation with the US Defense service. Even then, some bootcamps don’t accept the GI Bill. With a GI bill fund, you may have to deposit payments before you can reap the benefits. However, it’s a worthwhile investment.
Deferred Tuition Plans vs Income Share Agreements
Deferred tuition plans are financing methods in which the student starts a course at the bootcamp at no cost or makes a small deposit. The rest of the payment is completed at the end of the program, usually after securing employment. ISAs, on the other hand, are financed on the behalf of the student in exchange for a percentage of their future earnings.
Deferred tuition plans have a fixed amount stated in the repayment term, which is often significantly higher than the initial tuition. ISAs doesn’t state a fixed amount to be repaid. The number will be a percentage of your income, so will depend on your income potential.
There are strict legal guidelines for qualified ISAs to limit their control over the future earnings of the borrower. For instance, if the student is underemployed and earning less than $25,000 a year, they are not obligated to make payments. Deferred tuition plans require payment regardless of your income class.
Top Bootcamps with ISAs
If you are looking to start a career in tech but lack the funding, income share agreements are a great option to consider. However, not all bootcamps offer ISAs. To steer you in the right direction, we have compiled a list of bootcamps that offer income share agreements.
Thinkful is a top-rated coding bootcamp that offers full-time and part-time online courses to students. These programs are in software engineering, data science, data analytics, UX/UI design, digital marketing, and technical project management. Its other payment options include installment plans, deferred tuition, and traditional loans to students.
General Assembly teaches in-demand tech skills, such as software engineering, UX design, data science, front end development, product management, and data analytics. Its other financing options include the Catalyst income share agreement, monthly payments, scholarships, upfront payment, and employer sponsorship.
Ironhack exposes students to an in-depth knowledge of in-demand topics such as web development, data analytics, UX/UI design, and cyber security. Its alternative financing options include deferred plans, private loan plans, fellowship and employer sponsorship, and installment plans, depending on your location.
App Academy provides training to students with zero coding experience and turns them into tech experts in their desired career path. It offers online and onsite courses in software engineering. Alternative funding schemes include deferred tuition plans, upfront payment, and hybrid plans.
Hack Reactor empowers students to gain lucrative careers in software engineering through accelerated in-class programs. It offers online and onsite prep, full-time, and part-time courses in software engineering. Its alternative financing plans include scholarships and private loans.
Lambda School helps students with career coaching, job sourcing, and fellowship training. It offers full-time and part-time courses in data science, backend development, and full stack web development. It also offers free coding courses. Keep in mind that Lambda’s tuition and payment options vary depending on which state you live in.
The Tech Academy allows easy access to its high-level courses and thorough curriculum. It offers programs in software development, game development, cyber security, and mobile app development. Apart from ISAs, it offers credit card financing options, private loans, and monthly payments.
Coding Dojo offers students access to experienced teachers and an impressive alumni network of over 6,000 graduates. It ensures beginners and advanced learners are equipped with three full stack technologies. Its financing options, aside from ISAs, include upfront payments, installment plans, loan programs, and scholarships.
Prehired offers students the opportunity to launch lucrative careers through access to highly effective courses, lifetime membership benefits, and a job guarantee with top employers. Apart from ISAs, it offers deferred tuition, which allows students to resume a course without upfront payment until they’ve secured a decent salary.
Microverse equips students with the right skills to become software developers and get hired by global companies in a short period. It offers pre-course work coding challenges, which include algorithmic tasks and trial projects for students to execute in groups, before introducing them to the full-time program. Microverse also accepts upfront payment.
Are Income Share Agreements Worth It?
If you’re looking to upskill with a coding bootcamp, income share agreements are definitely worth it. Not only will you be motivated to succeed and graduate with an outstanding certificate, but you’re more likely to enjoy job placement and career benefits. When others have invested in your future, you are more likely to thrive.
If you want to get a job in the tech industry, an ISA is your best bet out of all the financial aid options. It is more flexible than a college degree, and the financial obligation only lasts a few years. Depending on your contract terms, an income share agreement could be the best option for you. Avoid federal student loans and try an ISA from a bootcamp.