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Income Share Agreements: What Are They, and How Do They Work?
An ISA is a student loan in which you receive education funding in exchange for a portion of your post-grad salary.
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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.
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.
Colin Beresford is a former NerdWallet student loans writer. He previously was an automotive business writer for Car and Driver magazine and is a graduate of the University of Michigan.
An income share agreement, or ISA, offers funding for college that you repay based on your future salary.
Although ISA providers have advertised their products as an alternative to loans, the Consumer Financial Protection Bureau, or CFPB, a federal regulatory agency, has said that ISAs are indeed student loans. Consider ISAs after exhausting any undergraduate federal student loans available to you, and compare offers from ISAs with traditional private student loans before deciding on the best funding option for your situation.
An income share agreement is a student loan in which you receive money to fund your education or training. In return, you promise to pay the ISA provider a fixed percentage of your income for a set amount of time after you finish school. You may repay more or less than the amount you received, depending on your agreement's terms.
College ISAs have roots back to a 1955 essay by famed economist Milton Friedman that explored the potential of investing in "human capital" to pay for education. While formal ISA programs have gained steam recently, they are still relatively uncommon as a means to pay for school.
Tonio DeSorrento, chief executive officer and co-founder of Vemo Education, a company that sets up and manages ISAs for schools, estimates that roughly 50 colleges have their own ISAs. That doesn't include alternative education programs, like Lambda School’s online bootcamps for coding, that use ISAs exclusively instead of student loans.
Most ISAs are run by colleges for their own students, sometimes with private capital sources. But you can get an income share agreement from a few private lenders, such as Stride Funding, that you can use at most schools.
Income-share agreement providers are student loan lenders
ISA providers have said that their products aren’t loans, but in September the summer of 2021, the CFPB said in a consent order that one provider was, in fact, providing “private education loans” to borrowers since the ISAs are a form of debt and are given to borrowers for education purposes.
As a result, this ISA provider, Better Future Forward, couldn’t continue claiming that its product was “not a loan.” Ultimately, BFF has to comply with the same rules that private student loan providers do, such as disclosing fees and interest rates, for the ISA.
Although the consent order was issued against just one ISA provider, it’s understood to be notice to the entire industry that the CFPB views ISAs as student loans, according to Heather Klein, a consumer financial services attorney at Ballard Spahr LLP.
As a result, all ISAs could begin disclosing rates, ultimately making them easier to compare with traditional student loans.
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
3.47-17.99%
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 12/2/2024. 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
4.99-17.99%
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 12/2/2024. 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 do income share agreements work?
Income share agreements are unregulated –– although this could change following the CFPB’s consent order –– so each can work differently. In general, you'll start repaying an ISA after you leave school and pass a specific income threshold. If you lose your job, you can stop making payments.
How much you'll pay each month and overall will depend on your specific ISA's terms. The ISA provider will determine these based on characteristics like your college major and projected salary. ISAs are not credit-based.
Income share percentage. How much of your gross income you'll pay every month. College ISAs typically have income shares between 2% and 10%, according to the 2019 "State of the Income Share Agreement (ISA) Market" report from Career Karma, a website focused on tech careers.
Salary floor. How much your salary has to be for payments to be due. An ISA's salary floor should reflect your expected post-graduate income. For example, Lambda School's salary floor is $50,000 because it expects graduates to get starting salaries of at least that much.
Payment cap. The most you'll have to repay under your ISA. The payment cap is typically a function of how much you received — such as two times that amount. Watch out for caps above 2X borrowed, as well as ISAs that don't have a payment cap at all. You could repay far more than you got.
Repayment term. How long your ISA contract lasts. Repayment terms typically range from two years to 10 years. Some ISAs will count months in which you earn less than the salary floor toward your repayment term. Others extend your repayment term in these instances.
Here's an example of how these terms come together to make an ISA work:
Say your ISA requires you to pay 5% of your post-grad income over a 10-year repayment term. If your salary started at $52,000 and increased 4% each year over the 10-year term, you’d initially pay $217 each month and $31,216 overall. If that ISA required 18% over two years, you’d initially pay $780 each month and $19,904 overall.
Consider the example above: If you received $20,000, you’d actually save money by paying $19,904. If you paid $31,216, it would be similar to repaying a student loan with an interest rate of 5.23% — which is still a competitive rate.
If you’re entering a field with high earnings potential, you’ll likely get better repayment terms than someone entering a field with lower income potential. But it’s possible you could still end up repaying significantly more than what you received. Pay attention to payment caps, also known as the most you’ll repay under your ISA; caps greater than 2X the amount you borrowed are red flags.
ISAs are best used to cover small funding gaps in certain circumstances. Consider an ISA if you’re an undergraduate borrower who has exhausted free aid such as scholarships and grants as well as federal student loans, and if you can’t get a private loan with payments that would be lower than those with an ISA.
If you can get a private loan at a better rate than an ISA, either with a co-signer or a no-signer student loan, the private loan is a better option as it will end up being cheaper.
