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.

When someone mentions student loan forgiveness, they are normally referring to the Public Service Loan Forgiveness (PSLF) program, which forgives people with federal student loans. If you qualify for this program, the complete balance of your federal student loan will be forgiven. This means that your payments permanently end.  There are a few other programs that will forgive your federal loans, but the PSLF program is the largest and most popular.

The other programs include the Teacher Loan Forgiveness program, which can potentially forgive up to $17,500 if you work in a low income area. The government also offers Perkins Loan Cancellation, Disability Discharge, Death Discharge, Bankruptcy Discharge (rare), Closed School Discharge, False Certification of Student Eligibility Discharge, and Unpaid Refund Discharge. Click on the links to learn more about each program.

Student Loan Forgiveness Qualifications and Application

To qualify for PSLF, you must have made 120 qualifying monthly payments on your student loans while under a qualifying repayment plan. A qualifying payment must be made after October 1st, 2007, have paid the full amount due, not be over 15 days late, and be paid while employed by a qualifying employer. Payments while in-school and the grace period, deferment, or forbearance do not count as qualifying monthly payments. A qualifying repayment plan includes all of the income-driven repayment plans. This means  that you must make 120 on-time payments while on one of the income-driven repayment plans to qualify.

Moreover, a qualifying employer, means a government organization or a 501(c)(3) tax-exempt not-for-profit organization. A not-for-profit organization that is not tax-exempt can also qualify if their primary purpose is to provide certain types of qualifying public services. You must work full time for these employers to qualify. If you serve full-time as a AmeriCorps or Peace Corps volunteer, you also qualify for the PSLF Program. 

Additionally, to qualify, you must have direct loans from the government. Federal Perkins Loans and Federal Family Education Loans are not eligible. However, you can consolidate them into a Direct Consolidation Loan that will qualify. 

One final requirement is to complete and submit the Employment Certification for PSLF form while making eligible payments. You must submit this form every year you work at a qualifying employer or when you change jobs to qualify. If you have not been doing this, you can submit one for each employer you worked for while making qualifying payments. To submit the application, you can mail or fax it to the Department of Education. You can also submit it online if FedLoan Servicing is your servicer.

Only after having completed all of these steps and submitting the PSLF application form will you be considered to have officially applied for student loan forgiveness.  The process may not provide a great experience but it can certainly relieve someone of their student loan obligation.

Alternatives to Student Loan Forgiveness

If you do not qualify for the PSLF option, there is still hope. You can always check out the other options that were listed above. You can also try to get the loan discharged in bankruptcy. While rare, it does still happen on occasion. To qualify, you must declare Chapter 7 or Chapter 13 bankruptcy. You must also prove that repayment of your student loans would cause undue hardship to you and your dependents. The court will examine multiple factors to determine undue hardship.

Another option for those looking to have their student loans forgiven is to refinance their loans to an Income Share Agreement. If you're not familiar with Income Share Agreements, you can find out more here. This financing option can help lower, or even eliminate, your monthly payments in times of hardship. To learn more, check out the Defynance website.