In 2016, Wake Forest alumnus James Bacon made the decision to pursue graduate studies. After paying for a four-year program of study and taking on student loans to cover the rest, he decided he would do the same for his degree at the University of Pennsylvania.
However, he eventually discovered a program that would cover his college expenses without any student loans, provided that he later agreed to forfeit a percentage of his salary. All of this is made possible by the Revenue Sharing Agreement (ISA), as these contracts are called.
According to Bacon, income sharing agreement was ideal at the time because it allowed him not to take on more student loans. Moreover, he liked that the future monthly payment would be predictable and based on his income.
“When I made more money, I could afford to pay more, but when I didn’t, I didn’t have to worry about finding the job I want and being able to provide for my family,” he said.
This flexibility prompted Bacon to work with his son-in-law on a business called Skill, a planning program that his son-in-law developed for his school, which had already expanded to 20 schools the previous year. If he had fixed student loan payments instead of ISA, he said, he might not have had the opportunity to work on a lower-salary startup.
How do revenue sharing agreements work?
If you’re wondering how revenue sharing agreements work, they basically work as they sound. Financial attorney Leslie Thane of Tayne Law Group says income sharing agreements are usually in the form of a contract between a student and a school or a third party. The main idea behind ISA is to allow students to avoid loans if they agree to pay a percentage of their salary for a certain period of time, provided that this salary is within certain limits.
For example, Tyne says a school can have a revenue sharing agreement of 20% of a student’s salary for two years with a threshold of $ 40,000 per year and a maximum payout of $ 30,000.
“If a student earned $ 50,000 a year, he would have paid $ 20,000 in those two years,” the lawyer notes, adding that a student who earned $ 100,000 a year would have paid $ 30,000 during this period from – for limiting the maximum payment.
There are many potential benefits to students who are eligible for the ISA, Thain said. instead of student loans… If student loans are based on a set loan amount plus compound interest, income sharing agreements are dependent on the student’s salary. Moreover, a student who has lost his job will not have to pay until he finds another job that meets the income threshold.
Mark Kantrowitz, author How to Appeal for Additional College Financial Assistance, also indicates that if your income falls below a certain threshold, the obligation to pay ISA may be suspended.
“After all, the lender wants to receive a percentage of your income when your income is high, not when it is low,” he says.
Promote, Kantrowitz says ISA can be a good choice for students whose religion or culture prohibits paying interest, such as Islamist and Russian Orthodox students.
Disadvantages of Revenue Sharing Agreements
Interestingly, students using ISA may find themselves pay more for college than if they immediately borrowed money. It all depends on how their contract will be awarded and how much they will earn in their future careers.
“Some students, such as students in lucrative fields of study, may end up paying more on the ISA than on the student loan,” Kantrowitz says.
He also points out that, unlike student loans, ISA is not regulated. This means that people contemplating this type of agreement will have to delve deeply into the fine print to understand exactly how much they will have to pay, on what terms and total cost of using ISA…
While Bacon is pleased with how his ISA situation has turned out, he also notes that ISAs offer less flexibility in terms of repayment. In particular, he didn’t like the fact that you have to keep paying for a certain number of years, and you usually can’t pay for ISA any faster.
Who is ISA for?
Getting a student loan to pursue higher education is not the end of the world, but will ISA make a difference for most people? “It really depends on the person and their goals,” says John Ross, CEO of the company. Test preparation information…
Ross says students who get well-paying jobs after graduation, such as an electrical engineer who makes more than $ 100,000 a year, may end up writing a sizable check to their university each year – potentially more than if they chose to borrow money. …
The key for students is to research how much they can expect to earn in the first five to ten years after graduation and to examine the terms of both funding models, says Ross.
“If a student is going to earn a significant amount after graduation because he is working in a lucrative field such as engineering, medicine or law, direct student loans, especially federal loans, may be preferable.”
With that said, Ross says revenue sharing agreements can be a great funding strategy for students who don’t expect to make a significant amount of money after graduation. If you are pursuing a career in a field you love but there may not be much money in it, for example, you may end up paying less with ISA than with student loans.
Thane also says that students who are unsure if the careers they are pursuing might be right for them. good for ISA…
“If they don’t find a high-paying job, or they decide this area is not right for them, they may not have to pay,” she says.
Only you can decide if studying ISA is worth it or if you prefer to borrow for college the old fashioned way. Whatever you do, calculate the numbers for each scenario so you know how much your degree will ultimately cost.
While ISA may gain in popularity, it can cost students more in the long run. Student loans aren’t perfect either, so do a little research and choose your poison accordingly.