{"id":32561,"date":"2021-06-21T12:08:34","date_gmt":"2021-06-21T19:08:34","guid":{"rendered":"https:\/\/careerkarma.com\/blog\/?p=32561"},"modified":"2021-10-16T01:11:50","modified_gmt":"2021-10-16T08:11:50","slug":"vemo-income-share-agreement-student-story","status":"publish","type":"post","link":"https:\/\/careerkarma.com\/blog\/vemo-income-share-agreement-student-story\/","title":{"rendered":"Income Share Agreements: Do I Have to Make ISA Payments If I Don’t Find a Job?"},"content":{"rendered":"\n

In April 2020, Kevin Williams signed an income share agreement (ISA)<\/a> 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\u2019s not particularly worried about paying the $12,000 tuition for his training.<\/p>\n\n\n\n

Educated, Underemployed, and Taking on Debt<\/h2>\n\n\n\n

Try typing \u201cstudent loan debt\u201d on your browser and count how often \u201ccrisis\u201d 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. <\/p>\n\n\n\n

Today, over 40 million Americans each owe $36,406 in federal student loan debt<\/a>. This isn\u2019t surprising. <\/p>\n\n\n\n

Current figures show that the average costs of college education per academic year<\/a> stand at $20,598 for public four-year institutions and $44,662 for private nonprofit and for-profit four-year institutions. <\/p>\n\n\n\n

Multiply each by four years, and you get a huge tab of $82,392 and $178,648 respectively. With such a hefty investment, it\u2019s not unreasonable to hope that a degree will lead to a stable and lucrative career. <\/p>\n\n\n\n

But the reality is: not every college graduate has a success story to tell.<\/p>\n\n\n\n

Employment site Monster found that 45 percent<\/a> 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\u2019t align with their goals or what they studied in college. <\/p>\n\n\n\n

Respondents cited financial desperation as the top reason they took jobs for which they were overqualified. <\/p>\n\n\n\n

Another study by labor analytics firm Burning Glass Technologies found that for every 10 college graduates who secured their first job, four were underemployed<\/a>. Worse, they were five times more likely to remain so five years later. As the study put it, \u201cThose who start behind tend to stay behind.\u201d<\/p>\n\n\n\n

Educated, underemployed, and saddled with debt, graduates find themselves in less desirable jobs to make ends meet. <\/p>\n\n\n\n

Granted, it\u2019s not clear where these graduates would be if they hadn\u2019t taken the college route. And studies of lifetime earnings show that a college education\u2014at the right price\u2014does typically pay off for graduates. <\/p>\n\n\n\n

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\u2019t leave them drowning in traditional student loans. For Kevin, he found this model in a coding bootcamp.

\u201cI got really hooked on web development…and then I realized I wasn\u2019t realy fit to join the workforce with the skills I had,\u201d said Kevin. \u201cSo, I chose a coding bootcamp to [build on those skills and become job-ready].\u201d<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

How Does an Income Share Agreement Work? <\/h2>\n\n\n\n

An income share agreement or ISA<\/a> 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\u2014whichever comes first.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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\u2019s based on your future potential.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Why an Income Share Agreement? Four Benefits of an ISA<\/h2>\n\n\n\n
  1. Your ISA payments are tied to your income.<\/li>
  2. Your ISA payments start when you hit the minimum income threshold after your grace period ends.<\/li>
  3. Income share agreements come with a payment cap.<\/li>
  4. Income share agreement loans take a shorter time to fulfill on average than traditional student loans.<\/li><\/ol>\n\n\n\n

    Your ISA Payments Are Tied to Your Income<\/h3>\n\n\n\n

    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. <\/p>\n\n\n\n

    Note, however, that while the amount you pay changes with your salary, your income share percentage remains constant. Coding bootcamp ISA payments<\/a> are usually indexed between eight and 24 percent of your pre-tax income per year. <\/p>\n\n\n\n

    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.<\/p>\n\n\n\n

    Gross Annual Income<\/strong><\/td>Fixed Income Percentage<\/strong><\/td>ISA Payment Per Year<\/strong><\/td><\/tr>
    Year 1: $40,000<\/td>15%<\/td>$6,000 ($500\/month)<\/td><\/tr>
    Year 2: $46,000<\/td>15%<\/td>$6,900 ($575\/month)<\/td><\/tr>
    Year 3: $53,000<\/td>15%<\/td>$7,950 ($662.50\/month)<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    <\/p>\n\n\n\n

    Your ISA Payments Start When You Hit the Minimum Income Threshold<\/h3>\n\n\n\n

    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.<\/p>\n\n\n\n

    1. What if your monthly earnings don\u2019t hit the minimum income threshold? <\/strong><\/h4>\n\n\n\n

    Then, you\u2019ll 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\u2019ve paid less than you received or nothing at all.

    Just remember to communicate with your bootcamp\u2019s ISA administrator. You\u2019ll have to submit documentation of your income and keep your deferment requests current in order to remain in compliance with your ISA.<\/p>\n\n\n\n

    2. What if you\u2019re earning above the income threshold and then lose your job?<\/strong><\/h4>\n\n\n\n

    Likewise, you\u2019ll qualify for payment deferment until you earn above the set threshold again.<\/p>\n\n\n\n

    You\u2019re 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. <\/p>\n\n\n\n

    Income Share Agreements Come with a Payment Cap<\/h3>\n\n\n\n

    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. <\/p>\n\n\n\n

    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.<\/p>\n\n\n\n

    Income Share Agreements Take a Shorter Time to Fulfill on Average Than Traditional Student Loans<\/h3>\n\n\n\n

    There are three ways to fulfill your income share agreement, whichever of the below comes first.<\/p>\n\n\n\n