Incurring debt to pay for school in uncertain economic times can feel like a risky move. On one hand, it’s easy to justify taking out a loan to cover educational costs because it will serve as an investment in your future. But on the other hand, you’re nervous you won’t find a well paying job after graduation and still be on the hook for repayment.
But student loans aren’t the only way to fund your education. In fact, if you’re considering using an outside lender to help fund your education expenses, you may want to consider an income share agreement.
*This article is sponsored by Stride Funding
What is an income share agreement?
Income Share Agreements (ISAs) are an innovative, flexible financing option for funding education-related expenses.
“With an income share agreement, you pay a small, fixed percentage of your future earned income over a five-year term following graduation,” said Tess Michaels, Chief Executive Officer of Stride Funding.
Michaels explained how an Income Share Agreement serves as a formal contract between the student and the financial institution, which in this case is Stride Funding. The terms of each ISA are unique to the student, and take into consideration your program of study. Unlike student loans, ISAs do not accrue interest. They do, however, supply your educational institution with payments on your behalf. In return, you agree to repay the ISA with a fixed percentage of your future income for a finite period of time.
“We look at where you’re going, not where you’ve been, so rates are based on your expected earnings based on your program of study,” added Michaels.
In order to receive a full understanding of how ISAs work, we asked Michaels to provide us with the top five reasons students use income share agreements to fund their education.
Reason #1 – The income share amount will adjust based on your income
By now, you’re probably aware the cost of higher education isn’t cheap. But that doesn’t mean your future bank account needs to suffer. An ISA provides students with a wallet-friendly repayment structure.
“ISA payments are based on a fixed percentage of your income, so you never pay more than you can afford. With traditional student loans, payments are fixed regardless of what you may earn.”
Just as Michaels notes, the amount you may be required to pay for a student loan will remain the same whether you earn a salary of $25,000 or $200,000 per year. The combination of high loan payments and low entry-level salaries could make it easy for borrowers to rack up additional debt in the early years of loan repayment just to make ends meet. But students utilizing an ISA have the added benefit of a three-month grace period post-graduation before payments are due. Given the current economic situation, a little extra time between graduation and repayment can go a long way.
Reason #2 – Borrowers only make payments if they earn more than the minimum threshold
You read that right—borrowers are only obligated to make payments if their earnings exceed the minimum threshold. That means if you don’t land your dream job immediately out of college, you may have some breathing room to get your finances in order before you begin paying back your education expenses.
“ISAs are considerably more flexible than traditional student loans, as borrowers never pay a dime if they make less than $40,000 per year.”
Michaels elaborated that ISA terms at Stride Funding include a minimum income threshold range between $30,000-$40,000, depending on the student’s program of study. She also noted that typical student loans have rigid payment schedules that require payment regardless of life conditions, including unemployment and family leave. With an ISA, your payments will pause without penalty if you experience any form of hardship and restart once you’ve gotten back on your feet.
“For any month where you make less than the minimum income threshold, you will pay nothing, and that month is simply added to the end of your payment term.”
Reason #3 – Income Share Agreements don’t accrue interest
“A defining feature of Income Share Agreements is that there is no typical interest rate on payments.”
Michaels informed us that even in periods of non-payments, Stride ISAs will never accrue interest. This is a particularly attractive feature for borrowers. Traditional student loans, by contrast, will continue to accrue interest despite the borrower’s economic circumstances.
“With a Stride ISA, there is no accruing interest if the borrower takes time off of work, or while they are in school. Instead, the rates in an Income Share Agreement are determined by income prediction models that take into account the student’s program, educational history, and plans for the future. This means better, fairer rates for students, based on where they’re going, not where they’ve been. The rates typically range from two to nine percent of income per $10,000 of funding received.”
Reason #4 – Income share agreements are generally fulfilled faster than student loans
Traditional student loans may require the borrower to continue making payments for decades until the balance is paid off. That’s not the case with ISAs. Stride ISAs generally follow a five-year payment term, absolving the borrower of payments once they have fulfilled the agreement. Changes to that timeframe may come as a result of paused payments, which could extend your repayment period. But despite the circumstances, payments on Stride ISAs end after 10 years.
“No matter how many payments you’ve made, your obligations to make payments will always end after 10 years, no matter how little you’ve paid.”
Reason #5 – Income Share Agreements can lead to long-lasting career support
Sure, your campus may have a career center, but what happens if you need career advice after you’ve been out of school for a few years? Income Share Agreements could introduce you to a tight-knit community of student peers and career services to provide continued support long after graduation.
“Our career services are an equally important part of who we are as a company. One of the unique features of income share agreements is that they directly align incentives all across the board, from our investors to the student: if the student succeeds, we succeed.”
Michaels shared with us some of the additional benefits students receive from obtaining a Stride ISA.
“We have developed robust career support services, with everything from resume services and interview prep, to partnership discounts and access to career-specific job boards. These are all aimed at making sure each Stride student has access to the best possible resources available.”
So how do you apply for an ISA?
“Applying with Stride starts with answering some simple questions, including what degree you are pursuing, which school you will be attending, your intended major and timing of graduation. The team then reviews your application and sends you a quote. This can all happen in a few hours. If you qualify, you’ll receive an ISA package detailing your income percentage, payment term, and outlining how the ISA structure works—personalized, of course.”
It can be hard for students to qualify for traditional student loans without a good credit score or high income, which can leave them seeking a guarantor. But rest assured — applying for an ISA from Stride Funding won’t require a co-signer.
“If you like the offer, our team will share the ISA contract for you to E-Sign and send back to us, at which point we begin working with your school to disburse your funding, and we also enroll you in our Stride community so you can start getting access to all of our career support tools!”
For more information about income share agreements, visit stridefunding.com.
Looking for other sources of financial aid? Check out Peterson’s scholarship search tool, which houses over $10 billion in scholarships, grants, and awards.