Most students who study in the US need to borrow money to pay for their education. This investment can be worthwhile because, according to the Bureau of Labor Statistics, workers with some type of college degree make $90 to $1,115 more per week than those with only a high school diploma. If you do need to borrow money, you’ll need to consider income share agreements vs student loans.
Most people have heard of ISAs for coding bootcamp programs, but ISAs are also available for traditional college education. ISAs and coding bootcamp loans are similar because they let you borrow money for school, but the repayment terms are totally different. We’ll cover the key differences between federal loans, ISAs, and private loans so you can decide the best way to finance your education.
What Is an ISA?
An income share agreement (ISA) is a type of borrowing agreement that students use to finance education programs. All ISAs have an income share percentage, a repayment period, and a payment cap. Some ISAs also have an income threshold, where you don’t have to make payments during months when your income is below that level.
Income share agreements work differently for different students because borrowing terms are based on projected earning potential. For example, say a student who borrows $20,000 with an ISA that has an eight percent income share percentage, a 72-month repayment period, and a payment cap of $35,000. That student will have to pay eight percent of their income for 72 months unless they pay a total of $35,000 before the repayment period ends.
If this student has a yearly salary of $60,000, then they will pay $400 a month for 72 months for a total of $28,800. If this student earns $85,000 per year, then they will pay $566.67 a month for only 62 months because they will hit the $35,000 payment cap. In the real world, salaries change over the repayment period, making it hard to estimate how much each ISA payment will be.
Who Should Use an Income Share Agreement?
If you have already exhausted your federal aid and all scholarship options but you still need more financial support, you could consider an income share agreement. ISAs should only be seen as a possible alternative to private student loans. Government loans, GI Bill benefits if you’re a veteran, and other financial aid programs are still a better bet for students.
What Are the Risks of an ISA?
- ISAs are relatively new. They are not as well-regulated as private student loans, and you can’t refinance an ISA to get better terms.
- If your income is above the income threshold, you have to pay the agreed income share percentage every month. If you don’t make a payment, your account can move to collections. This risk is similar to the risk of student loans, which lock you into a specific interest rate and impose penalties for failure to make payments on time.
- The lower your projected income, the worse your ISA terms will be. If the ISA lender thinks you won’t earn a lot of money, they will manipulate your borrowing terms to make sure you pay back the maximum amount possible. ISA lenders don’t have to reveal how they make borrowing term decisions or how your terms compare with other students.
ISA vs Loan: How Are ISAs Different From Student Loans?
ISAs and student loans both lend you money for education, but they function differently. Unlike an ISA, loans have interest rates and you might need a cosigner. ISAs and student loans also have different repayment terms, monthly payments, and borrowing limits. In the next section, we’ll cover these differences in detail.
Interest Rates
If you’ve taken out loans in the past, you’re probably familiar with interest rates. Traditional student loans have either fixed or variable interest rates, and interest rates can be subsidized for some federal loans. It’s easy to compare interest rates between different loans.
ISAs don’t have interest rates, but you will still end up paying more money than you borrowed initially. With an ISA, you consent to pay the lender an established percentage of your salary for a certain repayment term or until you reach the payment cap. Repayment plans vary drastically, with the borrower taking from five to 25 percent of your salary.
Repayment Terms
One of the main differences when it comes to ISAs vs student loans is the process of repayment. Most ISAs will give the borrower anywhere from three months to a year to find a job. Most private student loans don’t have a grace period and might require you to start making payments before you start earning a salary.
Student loan repayment terms are based on the loan’s interest rate, the amount borrowed, and how much you pay monthly. ISA repayment terms are calculated based on the lenders’ estimate of your earning potential. If you default on either a private loan or ISA, your account will go to collections and it will negatively impact your credit score.
Cosigners
ISAs don’t require cosigners because they calculate repayment terms based on an estimate of your future income. ISA lenders will only offer you an agreement if they think you’ll earn a high enough salary after graduation. For this reason, ISA lenders are focused on students on a STEM education track.
Most private student loans require a cosigner because the majority of students don’t have a steady income, strong credit history, or valuable assets. The cosigner will be held responsible for the loan if the student can’t pay. It can be difficult to ask a family member or loved one to take on this kind of risk.
Borrowing Limits
The amount you can borrow with an ISA varies, but most are between $5,000 and $20,000. In most cases, the lender will decide how much to offer you based on your expected income. Students can use ISAs to cover the total cost of a coding bootcamp or to cover the remaining costs of a traditional degree after using all available financial aid and federal loans.
Federal PLUS loans will let students borrow up to the full cost of attendance minus any financial aid. The cost of attendance is determined by your school, and some students find that their total costs are higher. For this reason, students sometimes turn to private student loans, which don’t have any borrowing limit.
Monthly Payments
With an ISA, your monthly payment will be the agreed-upon percentage of your income when your income is above the set threshold. If your income falls below the threshold, you don’t have to make a payment that month. You’ll still need to make the total number of monthly payments overall, but you can pause payments when your income is low.
Federal PLUS student loans have a variety of different payment options, including several income-based options. Unlike ISAs, federal student loan payment plans take into account family size, so if you have children to take care of, you’ll pay less per month. Any remaining balance on a student Direct PLUS loan in an income-based repayment plan is forgiven after 25 years.
Private student loans don’t have an income-based payment plan. You’ll have to pay the same amount every month regardless of your employment situation. With most private loans, you set the repayment time frame and the lender calculates a monthly payment that allows you to pay off the amount you borrowed plus interest in that time.
ISA vs Loan: Pros and Cons
| Advantages | Drawbacks | |
|---|---|---|
| ISA | Repayment terms are favorable if you are training for a high-paying profession You know the maximum amount you’ll have to pay with the payment cap Monthly payments are based on a fixed percentage of your salary |
Hard to estimate whether you’ll pay less than the payment cap Might pay more total than you would for a loan for the same amount New and poorly regulated |
| Private Loan | Borrowers with good credit can get lower interest rates You can take out as much as you need, not just enough to cover the cost of attendance Easy to calculate how much you will pay back with fixed interest rate loans |
High interest rates Many students need a cosigner The longer you take to pay back the loan, the more you’ll end up paying in total |
| Federal PLUS Loan | Grace period for student borrowers (but not for parent/guardian borrowers) Can be refinanced and/or bundled with other federal loans for better repayment terms Eligible for Public Service Loan Forgiveness and other federal student loan relief programs |
Requires a credit check You can only borrow up to the cost of attendance, not including additional expenses Not available for coding bootcamps |
When you compare income share agreements vs student loans, there are some important differences. ISAs are easy to get, but it’s hard to know how much you’ll pay over time. It’s also hard to determine whether you’ll end up paying more or less with an ISA or a loan. ISAs are relatively new products, and they don’t come with the same legal protections that loans have.
On the other hand, both private and Federal PLUS loans have monthly payments that are easy to calculate. Unlike an ISA, student loans can be refinanced or bundled for a better interest rate. Federal PLUS loans have the best terms for borrowers, but a PLUS loan might not cover all your expenses.
Should I Use an ISA to Finance My Coding Bootcamp?
A coding bootcamp ISA payment plan is one of the few borrowing options available to bootcamp students. You can’t take out federal loans for bootcamps, so after you’re maxed out on bootcamp scholarships, you’re left with private loans and ISAs.
Both in-person and online coding bootcamp ISA terms may be different for each student. Full stack developer bootcamp ISA terms can be different than digital marketing bootcamp ISA terms because full stack developers have a higher expected salary than digital marketers.
To decide if you should use an ISA to finance your coding bootcamp, do your own research to estimate your earning potential. Use resources like the Bureau of Labor Statistics Occupational Outlook Handbook, Glassdoor, or PayScale to estimate your salary, calculate expected monthly ISA payments, and compare your calculations with the cost of a private loan.
Top Coding Bootcamps With ISAs
Dozens of coding bootcamps offer income share agreements. The best ISA coding bootcamps have a strong curriculum, good employment outcomes for bootcamp grads, and favorable ISA payment terms. Here are a few of our top picks:
- General Assembly. General Assembly’s ISA terms require students to pay 10 percent of their income for 48 months when they earn more than $40,000 per year. The total payment for all General Assembly income share agreements is capped at one and a half times the cost of tuition.
- Clarusway. This coding bootcamp ISA requires 24 monthly payments of 9.9 percent of your salary, before taxes. You don’t need to pay until you make more than $40,000 per year, and you don’t have to pay anything if you make less than $40,000 for five years after graduation.
- Hack Reactor. Stride Funding is the lender behind this coding bootcamp ISA. In this program, students get a three-month grace period before they start making repayments. Students can choose to borrow the full cost of tuition or partial cost of tuition, as long as the amount is above $7,500.
- Coding Dojo. Coding Dojo’s ISA has an income threshold of $2,667 per month, an income percentage of 9.8 percent, and 70 required monthly payments. The income share agreement provider for Coding Dojo is Mia Share. Students who finance their program with an ISA will still need to pay a $1,000 deposit.
- App Academy. App Academy only has an ISA option for its online software engineering bootcamp. Monthly payments are paused until grads earn at least $50,000 per year. After that, they are responsible for 36 monthly payments of 15 percent of their monthly income unless they pay a total of $31,000 within 36 months.
- Galvanize. This school, which offers excellent programs under the brand name Hack Reactor Bootcamps, offers an ISA whereby the student does not have to make any payments until they graduate and start earning over $60,000.
Income Share Agreements vs Student Loans: Which One Is for Me?
So what should you do when it comes to picking an income share agreement vs a student loan? It’s not ideal to go into debt to pay for your education, but Statista reports that 55 percent of US graduates have student loan debt. Before you consider an ISA or a private student loan, make sure you have maximized all the federal financial aid and scholarships possible.
In the end, the decision to use an income share agreement vs a student loan comes down to your comfort with risk. It is possible to pay less overall with an ISA, but only in rare cases where borrowers earn less than predicted in high-earning jobs. Loans have well-defined monthly payments so you can budget more effectively, whereas ISAs take a fixed percentage of your income.
The best way to compare an ISA to a loan is to get a calculator and do the math on a few different salary scenarios on your own. Online ISA calculators and loan calculators often make assumptions that provide a more optimistic than realistic estimation. Finally, whenever possible, ask for help from your school’s financial advisors or visit a free financial clinic.
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Income Share Agreements vs Student Loans FAQ
It’s unlikely that you’ll save money with an income share agreement, though it is possible if you end up with a low salary. ISA fees are designed for the lender to make money off the borrowing agreement, not to save you money. It’s also hard to predict if you’ll save money with an income share agreement because your salary is likely to change over the two-to-ten-year repayment period.
How do you enter into an income share agreement?
Each ISA is calculated based on what the lender thinks your future salary will be, so the first step to entering into an income share agreement is to provide some information on your education and career potential. The lender will then send you a personalized ISA with your income share percentage, repayment period, and payment cap before you sign on.
Is an income share agreement the same as a loan?
An income share agreement isn’t the same as a loan, but they are both ways to borrow money to pay for school. A loan accrues interest over time that you need to pay back in addition to the amount you borrowed, while an income share agreement doesn’t have interest. However, based on the terms of most ISAs, you will also end up paying back more than the amount you borrowed.
Should I replace federal college loans with an ISA?
You shouldn’t replace federal loans with an ISA. Federal loans are better regulated, and all borrowers receive the same terms. ISAs can be considered as an alternative to private student loans, but borrowers should prioritize federal financial aid, scholarships, and grants before looking to private lending through loans or ISAs.
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