Income Share Agreements, also known as ISAs, are a financing method that was first proposed by Milton Friedman in the 1950s. Friedman proposed the idea as a way of selling personal stock. In this agreement, a person agrees to pay a fixed share of their future income for a set period of time, in exchange for an upfront amount of cash. For example, a person who wants to finance $5,000 of student loans could pledge 3% of their income for 5 years. In this case, they would receive the money up front and be responsible for monthly payments that equal 3% of their income.
Over the years, this idea has developed and has been used to provide protection for someone who receives funding. Recently, ISAs have featured a minimum income that people must have in order to be responsible to share their income. If people make below that threshold, normally around $20,000 per year, then they are not responsible for any payments. Most ISAs also feature a payment cap, where you won't pay astronomically more money than you borrowed. This is useful for someone who may start their own business and it does really well.
Instead of paying back multiple times more than they borrowed, they will only be responsible up to the payment cap.
With student debt currently at $1.5 trillion and continuing to rise, ISAs have been seen as a way to alleviate that debt. ISAs allow for the person being funded to refrain from taking on debt. However, an ISA may not be for everyone. Before you go straight to an ISA, you may want to think about a few things. If you have not used all of your available federal financial aid, it may be a good option as it offers a robust set of protections. Also, if you expect to make way more than an average person in your degree program, a loan may be right for you. However, if you do not want to worry about the risk if you possibly lose your job or end up making less than expected, an ISA may be a good tool to protect you.
At the moment, only a handful of companies offer these products as a financing tool and these companies can be limited in who they offer their products to. Defynance is one company that hopes to offer this product to all students. Currently they are only offering their product to University graduates with a degree, but are expanding to current students in the near future.
