In April 2020, Kevin Williams signed an income share agreement (ISA) loan to finance his full stack web development training at a coding bootcamp. A year later, Kevin has yet to secure a job in the tech field. Despite the setback, he’s not particularly worried about paying the $12,000 tuition for his training.
Educated, Underemployed, and Taking on Debt
Try typing “student loan debt” on your browser and count how often “crisis” pops up on the results page. Everyone familiar with the traditional education system in the United States can agree on one thing: student loan debt in the country has been rising at an unsustainable rate.
Today, over 40 million Americans each owe $36,406 in federal student loan debt. This isn’t surprising.
Current figures show that the average costs of college education per academic year stand at $20,598 for public four-year institutions and $44,662 for private nonprofit and for-profit four-year institutions.
Multiply each by four years, and you get a huge tab of $82,392 and $178,648 respectively. With such a hefty investment, it’s not unreasonable to hope that a degree will lead to a stable and lucrative career.
But the reality is: not every college graduate has a success story to tell.
Employment site Monster found that 45 percent of the college class of 2020 were still unemployed a year after their graduation. Of those who did find a job, 73 percent assumed roles that didn’t align with their goals or what they studied in college.
Respondents cited financial desperation as the top reason they took jobs for which they were overqualified.
Another study by labor analytics firm Burning Glass Technologies found that for every 10 college graduates who secured their first job, four were underemployed. Worse, they were five times more likely to remain so five years later. As the study put it, “Those who start behind tend to stay behind.”
Educated, underemployed, and saddled with debt, graduates find themselves in less desirable jobs to make ends meet.
Granted, it’s not clear where these graduates would be if they hadn’t taken the college route. And studies of lifetime earnings show that a college education—at the right price—does typically pay off for graduates.
But with high college tuition costs and stagnant wages in the job market, some have begun looking into alternative learning models that would train them for in-demand careers but wouldn’t leave them drowning in traditional student loans. For Kevin, he found this model in a coding bootcamp.
“I got really hooked on web development…and then I realized I wasn’t realy fit to join the workforce with the skills I had,” said Kevin. “So, I chose a coding bootcamp to [build on those skills and become job-ready].”
However, just like college graduates, not all coding bootcamp graduates see their dream jobs come to fruition immediately after training. One difference is that for bootcamp students like Kevin who signed ISAs, graduating into underemployment or even unemployment comes with a safety net.
How Does an Income Share Agreement Work?
An income share agreement or ISA is a type of loan where instead of paying tuition up front, you agree to pay a fixed percentage of your future gross monthly earnings up to a maximum amount or number of payments—whichever comes first.
Right away, the ISA makes for an appealing alternative for learners who want to upskill but lack the means to pay for training up front.
Depending on the program terms, an income share agreement may also be ideal for students who have less-than-stellar credit scores. Unlike traditional student loans, your qualification for many ISA loan programs is not tied to your creditworthiness. It’s based on your future potential.
At the moment, vocational training schools and coding bootcamps like General Assembly, Thinkful, and Flatiron School have widely adopted the income share agreement as a financing option. That said, note that different schools have different ISA terms and conditions.
Why an Income Share Agreement? Four Benefits of an ISA
- Your ISA payments are tied to your income.
- Your ISA payments start when you hit the minimum income threshold after your grace period ends.
- Income share agreements come with a payment cap.
- Income share agreement loans take a shorter time to fulfill on average than traditional student loans.
Your ISA Payments Are Tied to Your Income
Unlike traditional student loans, your ISA loan payments adjust according to your gross monthly income. This ensures that the payments needed to clear your debt stay proportionate to your earnings.
Note, however, that while the amount you pay changes with your salary, your income share percentage remains constant. Coding bootcamp ISA payments are usually indexed between eight and 24 percent of your pre-tax income per year.
To illustrate, consider the year-to-year salary change below and how it would affect ISA payments. Note that this is a sample illustration and that actual ISA payments are calculated based on gross monthly earned income, not annual salaries.
|Gross Annual Income||Fixed Income Percentage||ISA Payment Per Year|
|Year 1: $40,000||15%||$6,000 ($500/month)|
|Year 2: $46,000||15%||$6,900 ($575/month)|
|Year 3: $53,000||15%||$7,950 ($662.50/month)|
Your ISA Payments Start When You Hit the Minimum Income Threshold
While traditional student loans are due and payable regardless of your income, you only start making ISA loan payments once you hit the minimum income threshold stipulated in your ISA contract after the end of your grace period.
1. What if your monthly earnings don’t hit the minimum income threshold?
Then, you’ll apply for payment deferment and your income share agreement payments will be paused. You will only be required to make payments if and when your income rises above the minimum income threshold.
If your earnings remain under the threshold throughout your payment window, your ISA obligation will be fulfilled, even if you’ve paid less than you received or nothing at all.
Just remember to communicate with your bootcamp’s ISA administrator. You’ll have to submit documentation of your income and keep your deferment requests current in order to remain in compliance with your ISA.
2. What if you’re earning above the income threshold and then lose your job?
Likewise, you’ll qualify for payment deferment until you earn above the set threshold again.
You’re required to report your income and employment or unemployment status to your ISA provider. This lets them make the necessary ISA payment calculations and assess whether to pause or continue billing for your ISA payments.
Income Share Agreements Come with a Payment Cap
A payment cap refers to the maximum debt that you could be required to pay. Some income share agreements cap at 1.5 times the initial tuition cost. This means that if your tuition costs $12,000, the maximum amount you could have to pay is $18,000.
The payment cap ensures that you never pay more than a predetermined amount regardless of how high your income gets. Hitting the payment cap is one way to fulfill your ISA obligation.
Income Share Agreements Take a Shorter Time to Fulfill on Average Than Traditional Student Loans
There are three ways to fulfill your income share agreement, whichever of the below comes first.
- Hit the payment cap
- Make the maximum number of monthly payments; and
- Reach the end of the payment window
The payment window refers to the number of months or years an income share agreement remains active. Some income share agreement loans last two years, while others remain active for as long as 10 years. Wherever yours falls, this time frame is still shorter than the average time it takes to pay off a traditional student loan—that’s 20 years.
On that note, your income share agreement loan is considered fulfilled once the payment window closes, even if you haven’t hit the payment cap or made the maximum number of monthly payments. This is another distinction from traditional student loans, which need to be paid off completely regardless if it takes 20 years or more.
Kevin Goes Back to School
Kevin was in his final years of college and working toward a Bachelor of Science in Mathematics when he found a passion for web development through a couple of computer science courses. “When I found web development, I thought, ‘Oh, this is fun,’” he said.
“Just focusing on the front end of a web page, designing what the user sees and how the user interacts with it, or even how the screen changes depending on the user interaction, got me really hooked on web development.” After graduating, Kevin continued to learn the field, from building his own projects to watching YouTube tutorials.
Realizing he had to upskill if he wanted to become a professional web developer, he enrolled in the first coding bootcamp that he found.
“I didn’t know what a coding bootcamp was at the time,” said Kevin. “I just saw an advertisement for one bootcamp, and it said the school had a web development course. I wasn’t interested in learning backend development, but a full stack web development course was all the school had at the time.”
That was in 2017. Kevin wouldn’t start training until three years later. “When 2020 came around, the pandemic started, so I thought, ‘Okay, I really need to get started on [my training].’ I had just stopped working because of the pandemic,” he said.
It was at this point that Kevin was introduced to the income share agreement.
So, Is an Income Share Agreement a Good Idea? For Kevin, It Was.
“I thought it was amazing,” said Kevin when asked about his initial response to income share agreements. “My credit score was not the best when I signed up for the program. So when I saw the ISA, I thought, ‘Oh, there’s a way that I can just pay [the school] when I get a job.’
“It was a real light-in-the-dark situation. There was something I could do to learn new information without paying up front and without getting [traditional] loans.”
A year later, the income share agreement loan would serve Kevin more than he thought it would.
After finishing the program, Kevin was unable to land a job in web development. In its place, he applied as a Career Karma ambassador and AMA host. “I welcome new users when they download the Career Karma app…I talk to them and give them some information about the resources that Career Karma has to help them start their job in technology,” he said.
“As an AMA [Ask Me Anything] host, I act as the moderator of a room and make sure that people get a chance to ask questions from the speaker of the evening.”
Because he’s earning less than the minimum income threshold defined in his income share agreement, Kevin has yet to pay anything.
“I graduated from [the coding bootcamp] in April of 2020. It is now June of 2021. I still haven’t landed a position in the technology [industry]…But I haven’t paid anything yet for my ISA,” said Kevin.
“I do get an email from [my ISA provider] every month. They say, ‘Let’s verify your income.’ I do. And they say, ‘Okay, you don’t have to pay anything,’” said Kevin. “I don’t even have to remember to do that. [My ISA provider] sends me an email, I verify my income, and then it’s done. It’s not a cumbersome task at all.”
It Isn’t Free Lunch
An income share agreement loan provides a certain layer of protection that traditional student loans don’t. If a coding bootcamp graduate who signed an ISA fails to land a job that pays above the minimum income threshold, the graduate will not be forced to pay for training that they did not benefit from or tuition that they cannot afford.
That said, Kevin cautions those who regard an income share agreement as a free pass to learning. “The whole point of going into a bootcamp and signing an income share agreement is to get a job in the tech industry once you finish your training,” said Kevin.
“The goal is to pay your school back. They gave you the knowledge. Give them the money for it. It isn’t a free lunch.”
“My situation before I went into the bootcamp was not perfect,” he said. “And if the income share agreement was not an option then, I would not have gone through the program. I don’t think I would’ve been introduced to all the things that I learned.”
Despite not being in his dream role now, Kevin has not stopped working towards his goal.
“I want to be a front end developer focused on UI engineering. I want to dedicate my time to making fabulous user interfaces,” he said. “I also want to get into a little bit of game development…If I can develop a game on the web, that’s kind of blending the best of both worlds.”
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