As the cost of education continues to skyrocket, students and families are looking for innovative ways to pay for college. One option that has gained popularity in recent years is the income share agreement (ISA).
An ISA is a contract between a student and an investor (often a company or a higher education institution) where the student agrees to pay a percentage of their future income for a set period of time in exchange for funding for their education.
The idea behind an ISA is that it aligns the incentives of the investor with the success of the student. If the student is able to secure a high-paying job after graduation, they will pay back more money to the investor. If the student struggles to find work, the investor will receive less money.
ISAs can be particularly appealing to students who may not qualify for traditional student loans or who want to avoid taking on significant debt. Additionally, because ISAs are not considered debt, they do not accrue interest and are not subject to bankruptcy, which can provide some financial security to students.
However, there are also potential drawbacks to ISAs. Unlike traditional loans, there is no fixed interest rate or payment schedule, which can make it difficult for students to budget and plan for the future. Additionally, because the investor is taking on more risk than a traditional lender, they may charge a higher percentage of the student`s future income, which could be a significant financial burden.
Another concern is the potential for ISAs to exacerbate existing inequalities in the education system. Because ISAs are based on a percentage of income, students who choose low-paying fields or who face discrimination in the job market may end up paying back a higher percentage of their income than their higher-earning peers.
Overall, ISAs are an interesting alternative to traditional student loans that may provide greater financial flexibility to students. However, it`s important for students to fully understand the terms of the contract and weigh the potential benefits and drawbacks before signing on. As with any financial decision, students should do their research and consult with a financial advisor or other trusted professional.