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Income Share Agreements vs. Student Loans: Which Costs Less?
Estimate your future salary to determine if an ISA will cost less than a student loan.
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Anna Helhoski is a senior writer covering economic news and trends in consumer finance at NerdWallet. She is also an authority on student loans. She joined NerdWallet in 2014. Her work has appeared in The Associated Press, The New York Times, The Washington Post and USA Today. She previously covered local news in the New York metro area for the Daily Voice and New York state politics for The Legislative Gazette. She holds a bachelor's degree in journalism from Purchase College, State University of New York.
Des Toups Lead Assigning Editor | Student loans, repaying college debt, paying for college
Des Toups was a lead assigning editor who supported the student loans and auto loans teams. He had decades of experience in personal finance journalism, exploring everything from car insurance to bankruptcy to couponing to side hustles.
Ryan Lane Assigning Editor | Small business, student loans
Ryan Lane is an editor on NerdWallet’s small-business team. He joined NerdWallet in 2019 as a student loans writer, serving as an authority on that topic after spending more than a decade at student loan guarantor American Student Assistance. In that role, Ryan co-authored the Student Loan Ranger blog in partnership with U.S. News & World Report, as well as wrote and edited content about education financing and financial literacy for multiple online properties, e-courses and more. Ryan also previously oversaw the production of life science journals as a managing editor for publisher Cell Press. Ryan is located in Rochester, New York.
Income share agreements, or ISAs, are student loans, according to a decision from a federal regulatory agency. But ISAs can make sense as an alternative to some other types of student loans — if they'll cost you less overall.
It's easy to calculate traditional student loan payments based on a loan's terms. But ISA payments depend on your post-college income. Because you can't know that specific number, it can be hard to tell how an ISA stacks up vs. a student loan.
NerdWallet looked at three scenarios to determine how different income share agreements compare with federal PLUS and private student loans. Here's what we found, as well as tips and a calculator to perform your own analysis.
To find out how much different earners would pay on a $20,000 ISA over a 10-year repayment term, we looked at three income levels — $38,000, $52,000 and $75,000. These are approximate representations of low, middle and high incomes.
We assumed each income would increase 4% annually, and used three income share percentages: 3%, 5% and 10%. Here's how they compared:
Starting salary
ISA 3% of income
ISA 5% of income
ISA 10% of income
Income 1: $38,000
$13,687
$22,812
$45,623
Income 2: $52,000
$18,730
$31,216
$62,432
Income 3: $75,000
$27,014
$45,023
$90,046
You won't always repay more than the amount you received with an ISA, but you're likely to if you’re a higher earner or have higher percentage terms.
For example, say you get a $20,000 ISA and agree to pay 10% of your income over a 10-year term. If you earn an annual income of about $75,000, you could pay back nearly $90,000; however, there’s usually a cap on the amount you can repay — don't agree to an ISA without a payment cap.
If you earned about $52,000, you'd still pay back more than your financing amount at a 5% or 10% income share. The only time you'd pay less than the original $20,000 would be if you had a small income share (3%) and relatively little income — $13,687 for a $38,000 earner and $18,730 for a $52,000 earner.
ISAs should supplement undergraduate federal loans, not replace them. We compared our ISA findings with two common additional types of student loans: federal PLUS loans and private loans.
First we looked at a $20,000 PLUS loan with an APR of 7%, repaid over 10 years. Then we considered a private loan of $20,000 with an APR of 9% with that same repayment period.
We also wanted to see how ISAs compared with student loan refinancing, since that can reduce private loan debt. We looked at how much a borrower would spend after refinancing a $20,000 private loan to a 5% APR and new standard 10-year term after two years of regular payments.
Here's how much each would cost:
Parent PLUS loan
Private loan
Refinanced
private loan
$27,866
$30,402
$28,091
In this example, an ISA is a less expensive option than PLUS, private or refinanced loans if you'll be a high earner — as long as you only have to pay back 3% of your income. ISAs are also cheaper if you project to earn an income of about $38,000, but only if you have payback terms of 3% or 5% of future income.
However, if you're projected to make less money, you're less likely to get these favorable, low-percentage ISA terms.
NerdWallet ratingNerdWallet's ratings are determined by our editorial team. The scoring formula for student loan products takes into account more than 50 data points across multiple categories, including repayment options, customer service, lender transparency, loan eligibility and underwriting criteria.
Fixed APR
3.59-17.99%
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1)All rates include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation. (2)As certified by your school and less any other financial aid you might receive. Minimum $1,000. (3)This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 11/1/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of the Flat Repayment Option with the shortest available loan term.
Variable APR
5.34-17.99%
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1)All rates include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation. (2)As certified by your school and less any other financial aid you might receive. Minimum $1,000. (3)This informational repayment example uses typical loan terms for a freshman borrower who selects the Flat Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.78% fixed Annual Percentage Rate (“APR”): 54 monthly payments of $25 while in school, followed by 96 monthly payments of $176.21 while in the repayment period, for a total amount of payments of $18,266.38. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 11/1/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of the Flat Repayment Option with the shortest available loan term.
NerdWallet ratingNerdWallet's ratings are determined by our editorial team. The scoring formula for student loan products takes into account more than 50 data points across multiple categories, including repayment options, customer service, lender transparency, loan eligibility and underwriting criteria.
Fixed APR
3.49-15.49%
Lowest rates shown include the auto debit. Advertised APRs for undergraduate students assume a $10,000 loan to a student who attends school for 4 years and has no prior Sallie Mae-serviced loans. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan’s Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. Advertised APRs are valid as of 11/25/2024. Loan amounts: For applications submitted directly to Sallie Mae, loan amount cannot exceed the cost of attendance less financial aid received, as certified by the school. Applications submitted to Sallie Mae through a partner website will be subject to a lower maximum loan request amount. Miscellaneous personal expenses (such as a laptop) may be included in the cost of attendance for students enrolled at least half-time. Examples of typical costs for a $10,000 Smart Option Student Loan with the most common fixed rate, fixed repayment option, 6-month separation period, and two disbursements: For a borrower with no prior loans and a 4-year in-school period, it works out to a 10.28% fixed APR, 51 payments of $25.00, 119 payments of $182.67 and one payment of $121.71, for a Total Loan Cost of $23,134.44. For a borrower with $20,000 in prior loans and a 2-year in-school period, it works out to a 10.78% fixed APR, 27 payments of $25.00, 179 payments of $132.53 and one payment of $40.35 for a total loan cost of $24,438.22. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not.
Variable APR
4.92-15.08%
Lowest rates shown include the auto debit. Advertised APRs for undergraduate students assume a $10,000 loan to a student who attends school for 4 years and has no prior Sallie Mae-serviced loans. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan’s Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. Advertised APRs are valid as of 11/25/2024. Loan amounts: For applications submitted directly to Sallie Mae, loan amount cannot exceed the cost of attendance less financial aid received, as certified by the school. Applications submitted to Sallie Mae through a partner website will be subject to a lower maximum loan request amount. Miscellaneous personal expenses (such as a laptop) may be included in the cost of attendance for students enrolled at least half-time. Examples of typical costs for a $10,000 Smart Option Student Loan with the most common fixed rate, fixed repayment option, 6-month separation period, and two disbursements: For a borrower with no prior loans and a 4-year in-school period, it works out to a 10.28% fixed APR, 51 payments of $25.00, 119 payments of $182.67 and one payment of $121.71, for a Total Loan Cost of $23,134.44. For a borrower with $20,000 in prior loans and a 2-year in-school period, it works out to a 10.78% fixed APR, 27 payments of $25.00, 179 payments of $132.53 and one payment of $40.35 for a total loan cost of $24,438.22. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not.
Credible lets you check with multiple student loan lenders to get rates with no impact to your credit score. Visit their website to take the next steps.
How to estimate your ISA costs
Unless you have a time machine, there’s no way to know decisively whether an ISA will cost you less than a student loan. If you crave certainty, stick with the loan and look to refinance as soon as you can to save money.
If you're not sure if an income share agreement is right for you, do the following to estimate your post-graduation salary so you can figure out how might you might pay overall:
Look at your school's outcomes. The Department of Education's College Scorecard includes salary information for specific programs at schools. For example, film/video and photographic arts students at the University of Utah have a median salary of $23,000. But computer science graduates at that school earn a median salary of $73,000.
Check the Bureau of Labor Statistics. BLS.gov can show your prospective profession's current median salary and the future outlook for that job. This information can help you tell how hard it might be to find a job in your desired field post-graduation, as well as how much you could earn in the future.
Ask the lender for its calculation. The ISA provider will plug a projected salary into its calculation to determine your agreement's terms. Some make this data available. But you can always see if the lender will share this information, so you can confirm if it is realistic compared to income data you've found.
Because ISAs don't charge traditional interest — and thus, don't have an interest rate — it can be hard to compare them with student loans. The ISA calculator below will provide an interest rate based on your information.
Nonetheless, ISAs will start disclosing information such as interest rates and fees following a consent order issued by the Consumer Financial Protection Bureau, or CFPB, a federal regulatory agency. That consent order said that ISAs are student loans and are subject to the same laws and regulations that student loans have to abide by.
Use this calculator once you've estimated your post-grad salary and determined how you'll get an ISA to estimate how much you'll repay overall.
