In recent years, income-share agreements (ISAs) have gained attention as an alternative to traditional student loans. Offering a unique approach to education financing, ISAs allow students to pay for their education by committing a percentage of their future income.
This payment system appeals to those who don’t earn enough to repay traditional student loans, but it’s not without controversy. Action by the Consumer Financial Protection Bureau (CFPB) against several ISA providers has raised questions about these agreements’ transparency, fairness, and long-term impact.
The following sections explore ISAs, including their structure, providers, comparisons with other financing options, and common questions potential applicants may have.
In this guide:
- How income-share agreements work
- Examples of an ISA loan
- Where to get an income-share agreement
- Pros and cons of ISAs
- Lawsuits and legal concerns
- How does an ISA compare to other education finance options?
- Income-share agreement FAQ
- Ask the expert
How income-share agreements work
Income-share agreements (ISAs) are financial contracts that enable students to receive education funding. In return, the student commits to pay a percentage of their future income for a set period.
These agreements mainly appeal to students seeking alternatives to traditional loans. Lenders offer them as well as a handful of universities and colleges. Most ISAs involve the same general process:
- Application: Apply with the school or provider for a specified amount to put toward your education.
- Agreement signing: Sign an ISA with a lender or college.
- Repayment terms: Choose from the terms the lender or school offers to define how much of your income you’ll pay, for how long, and the minimum income (threshold) that initiates payments to begin.
- Repayment period: After graduation, and once earning above the threshold (e.g., $30,000), you start repayment.
- Completion: Once the repayment period ends or you reach the payment cap—often a multiple of the amount you received or an implied APR based on the amount—the ISA is complete.
Unlike traditional loans, ISAs don’t accumulate interest. The repayment is tied to income, so if you earn less, you pay less. ISA lenders may be more invested in your success because the more you earn, the more they receive.
Examples of an ISA loan
Here are two contrasting scenarios to illustrate how ISAs work:
Example 1: Emily
- Amount borrowed: $20,000
- Situation: Emily graduates and lands a job earning $70,000, with consistent annual pay increases of 5%.
- ISA terms: Emily agreed to pay 10% of her income for five years.
- Cost breakdown:
- Year 1: $7,000 (10% of $70,000)
- Year 2: $7,350 (10% of $73,500)
- Year 3: $7,717.50 (10% of $77,175)
- Year 4: $8,103.38 (10% of $81,033.75)
- Year 5: $8,508.54 (10% of $85,085.38)
- Total cost: $38,679.42 over five years, compared to the borrowed amount of $20,000.
Example 2: Michael
- Amount borrowed: $20,000
- Situation: Michael graduates and finds a job earning $30,000 with minimal annual pay increases.
- ISA terms: Michael agreed to pay 10% of his income for five years, provided he earns at least $25,000.
- Cost breakdown:
- Year 1: $3,000 (10% of $30,000)
- Year 2: $3,060 (10% of $30,600)
- Year 3: $3,121.80 (10% of $31,218)
- Year 4: $3,184.63 (10% of $31,846.30)
- Year 5: $3,249.12 (10% of $32,491.20)
- Total cost: $15,615.55 over five years, compared to the borrowed amount of $20,000.
You can see from these examples how drastic differences in ISA payments can be based on the borrower’s postgraduation income.
Where to get an income-share agreement
We found one company that offers income-share agreements in the U.S. for college education funding.
Company offering education ISAs
- Offers income-share agreements (ISAs) for college education funding, lasting 60 months of payments over a 120-month period.
- Provides funds ranging from $2,500 to $25,000 per year, with no credit check for a quote and no cosigner requirement.
- Accessible to U.S. citizens or permanent residents in 48 states enrolled in a bachelor’s, master’s, or doctorate program.
Instead of a traditional loan, Stride offers students an option for a financing solution that aligns with their income. Payments don’t begin until you make at least $30,000 per year. This allows for more flexible repayments. You can end the repayment plan early if you hit Stride’s cap—an implied APR of 21%.
To understand what Stride means by an implied APR, imagine you borrowed $11,000 from Stride and agreed to repay it at 15% of your gross monthly income (the highest percentage possible).
|Gross annual income||$58,000|
|Monthly payment amount||$700|
|Maximum implied annual percentage rate (APR)||21%|
|When is implied APR reached?||After 23 months|
You would have repaid your Stride agreement in less than two years because your payments reached the implied APR. However, note that at 15% of your income, your monthly payments could be significant.
Stride terms and eligibility information:
- Minimum income before payment is due: $30,000
- Funding amount: $2,500 – $25,000 per year (maximum of $50,000 per student)
- Capped repayment amount: Implied APR of 21%
- Percentage of income to repay: 1% – 15% of monthly gross income
- Citizenship: U.S. Citizen or permanent resident
- Age requirement: At least 18
- State eligibility: May attend school or reside in 48 states (except Colorado and West Virginia)
- Enrollment requirements: Bachelor’s, master’s, or doctorate program at a 4-year Title IV college or university; within 2 years of graduation; at least half-time enrollment
- Minimum GPA: 2.9
- Credit check: No soft credit check for quotes; hard credit pull if applying for funding
- Cosigner requirement: None
Universities and colleges with income-share agreements
Many universities and colleges that were offering ISAs have suspended these programs, particularly in the wake of the CFPB lawsuits. (More about these below.)
However, in our research, we found a couple of educational institutions that continue to provide this funding option.
Private, not-for-profit college in Scranton, Pennsylvania
- ISA program is available to students enrolled full-time in specific degree programs, with required academic standards.
- Capped repayment ensures payments don’t exceed twice the funding received.
- Repayment begins once the student’s income reaches $20,000 per year.
Lackawanna College continues to offer an ISA program. Students pursuing select bachelor’s degrees, who maintain a 2.5 GPA and earn at least 12 credits, can apply.
This ISA program includes a capped repayment structure limiting the amount students will repay to twice the initial funding. The repayment term ends once the student repays the capped amount or the five-year term expires.
Terms and eligibility information:
- Minimum income before repayment: $20,000
- Funding amount: Not disclosed
- Capped repayment amount: Twice the amount of funding received
- Repayment term: 5 years (or until capped amount is reached)
- Eligibility requirements:
- Enrolled full-time
- Maintain a 2.5 GPA
- Earn at least 12 credits
- Pursuing specific bachelor’s degrees
Lackawanna College’s ISA program is one of the few remaining options in the educational sector following the broader industry trend of suspending these agreements. It’s essential for potential applicants to consider the terms and consult with a financial professional, given the legal and regulatory landscape surrounding ISAs.
Robert Morris University
Private, not-for-profit college in Pittsburgh, Pennsylvania
- ISA is managed through Stride.
- Program funds up to $5,000 per year, capping repayment at 1.8 times the funded tuition.
- Repayment period spans 84 months, and payments pause if income falls below $25,000 per year.
Robert Morris University has partnered with Stride for its ISA option, offering funding of up to $5,000 per year. Payments account for 3.75% or less of monthly earnings for 84 months. Payments pause if a student’s income falls below $25,000 annually, and the obligation may expire automatically after 10 years.
Repayment ends before the seven-year repayment period if you repay 1.8 times the amount you borrowed. Here’s more about this program.
Terms and eligibility information:
- Minimum income before repayment: $25,000
- Funding amount: Up to $5,000 per year
- Capped repayment amount: 1.8 times funded tuition
- Repayment term: 84 months
- Other details: Payments pause if income is below the threshold, expiring after 10 years if necessary.
Computer and tech school with an income-share agreement
Bloom Institute of Technology
For-profit online course
- Offers ISAs for online courses in tech fields, such as web development and data science.
- Program is 100% remote, resulting in a certificate of completion rather than a degree.
- Repayment terms include a high minimum income threshold and a substantial capped repayment amount with a mandatory down payment.
Bloom Institute of Technology‘s income share agreements may attract individuals interested in online learning and tech-related certificates. However, the terms warrant careful consideration.
The minimum income before repayment is $50,000, and the capped repayment amount, including a $2,950 down payment, reaches $42,950. These details, coupled with a repayment percentage of 14% of income over four years, might present challenges to potential students.
The school’s ISA covers specific courses or programs, including full-stack web development and data science. The remote nature of the courses may be appealing to some but might not be suitable for everyone.
Terms and eligibility information:
- Minimum income before repayment: $50,000
- Capped repayment amount: $42,950 (includes $2,950 down payment)
- Percentage of income to repay: 14%
- Loan terms: 4 years (48 payments)
- Eligibility requirements: Open to all states except California and Colorado; U.S. citizens, U.S. permanent residents, or DACA recipients only.
The ISA at Bloom Institute of Technology presents unique opportunities but significant caveats.
The online remote learning environment may offer convenience, but the financial aspects of the agreement—including the high minimum income threshold and capped repayment—may pose substantial risks.
Prospective students should exercise caution and seek comprehensive advice before committing to this particular ISA, especially considering the down payment requirement and the lack of a degree upon completion.
Pros and cons of ISAs
Income-share agreements (ISAs) are emerging as an alternative to traditional student loans, with distinct advantages and disadvantages. Here’s a quick look at both sides.
Income-share agreements may provide an affordable debt solution for students who struggle with traditional student loans.
Unlike student loans, ISAs don’t accrue interest, which can be beneficial over time.
Payments are based on income percentage, which could ease the burden on low earners.
Lenders have a vested interest in the students’ employment success because their profits hinge on job placement.
ISAs often include capped repayment terms and total amounts, adding predictability.
With flexible income-based payments, ISAs may offer more adaptable options than many private student loans.
Students may end up repaying more than they borrowed, which could lead to financial strain.
As a newer option, ISAs lack the extensive variety you’ll find with traditional student loans.
Income-based repayments mean higher earners pay more, potentially outweighing the initial benefits.
Transparency can be an issue, with some ISAs hiding crucial terms and conditions, as highlighted by legal actions such as the CFPB lawsuits.
Certain for-profit institutions advertising ISAs may raise red flags, including non-degree-granting schools and those requiring substantial down payments.
Anyone considering an ISA should consider these factors, paying careful attention to transparency and the specific terms individual institutions or lenders offer. We recommend speaking with a financial professional before signing an income-sharing agreement.
We at LendEDU want to emphasize our concerns with these products based on several legal issues.
Income-share agreement lawsuits and legal concerns
ISAs have come into the legal spotlight, and several companies and schools have ceased offering them. Here’s a snapshot of the situation:
- Consumer Financial Protection Bureau (CFPB) lawsuits:
- In September 2021, the CFPB found that ISA company Future Forward Inc. misrepresented its product and failed to comply with federal consumer financial law.
- In July 2023, the CFPB and the states of Delaware, Washington, Oregon, California, Minnesota, Illinois, South Carolina, North Carolina, Massachusetts, Virginia, and Wisconsin, filed a lawsuit against Prehired LLC and two related companies, Prehired Recruiting LLC and Prehired Accelerator LLC.
- Deceptive practices: Among other concerns, the lawsuits center around deceptive practices. By claiming that the ISAs were not loans or credit and didn’t create debt, the ISA companies misled customers.
These ongoing legal battles cast a shadow over the ISA industry and have led to heightened concerns over transparency, accountability, and ethical practices.
How does an ISA compare to other education finance options?
We compared income-share agreements to other options to pay for college, including two other student loan alternatives.
|Finance option||Interest accrual?||Repayment terms||Payments depend on income?||Eligibility and restrictions|
|Income-share agreements||❌||Based on income|
Capped repayment and term
Often no credit check
May have minimum income requirements
|Federal student loans||✔️||Fixed schedule|
Forgiveness options available
|✔️ (For borrowers who choose income-driven repayment)||Must meet federal eligibility criteria|
Caps on borrowing
|Private student loans||✔️||Fixed schedule||❌||Credit check often required|
May have variable interest rates
|Scholarships and grants||❌ (No repayment required)||N/A||N/A||Based on merit, need, or specific criteria|
No need to repay
|Federal work-study||Earn funds through work||N/A||N/A||Must meet federal eligibility criteria |
Depends on availability
This table illustrates the contrasting characteristics of each finance option.
ISAs can offer a unique repayment structure tied to income without interest accrual, but we recommend due diligence and careful consideration before you sign one of these agreements.
Federal and private loans operate on a more traditional interest-based model, with varying levels of flexibility and protection.
Scholarships and grants offer a no-repayment benefit but come with specific eligibility requirements. Federal work-study ties funding to work, representing another distinct avenue for financing education.
Income-share agreement FAQ
Who can apply for an ISA?
ISAs are typically available to U.S. citizens, permanent residents, or DACA recipients, although eligibility varies between providers. Most providers do not disclose a minimum credit score, but state restrictions may exist. Some ISAs are designed for specific courses or fields of study.
What percentage of my income will I pay if I enter an ISA?
The percentage of income you’ll pay varies by provider and can be 15% or less in many cases. The payment aligns with a percentage of your income, and providers may offer options to choose the best rate for your budget.
Are there caps on what I’ll repay through an ISA?
Yes, most ISAs have a capped repayment amount, limiting how much you’ll repay over the contract’s life. This cap could be a multiplier of the original funding amount or an implied APR.
What happens if my income changes or I lose my job during repayment?
ISAs are designed to be flexible with income changes. If your income reduces or you become unemployed, the provider might reduce or pause your payments. The provider might extend the terms of your contract, and the contract may include specific rules regarding changes in income.
How do ISA payments affect taxes? Are they considered taxable income?
ISA payments are typically not considered taxable income for the recipient. However, tax laws may vary, and we always recommend consulting with a tax professional to understand the specific tax implications for your situation.
Does any career or field of study qualify for an ISA, or are there restrictions?
Some ISAs are tailored for specific careers or fields of study, such as technology or health care. Providers may have specific courses or programs that qualify, so it’s essential to review the details with the provider to understand any restrictions.
What protections exist for students entering into an ISA to ensure fair treatment?
Protections can vary, and it’s vital to review the terms and conditions of the ISA. As recent lawsuits show, some providers may not be transparent about the terms. Always research the provider, ask questions, and consider seeking legal or financial advice to understand the agreement fully.
Ask the expert
How would you evaluate whether an ISA is suitable for an individual?
How do ISAs affect financial planning, especially longer-term goals (e.g., retirement and home ownership)?
When a repayment plan is agreed upon and followed to completion, the impact on future goals should be minimal. However, life happens, and repayment plans may need to be adjusted, which could affect future goals.