Income Share Agreements (ISAs): How They Work, Pros and Cons

An income share agreement, or ISA, is a financing option that provides upfront funding for college, career training, or another educational program. Instead of repaying a traditional student loan with interest, you agree to pay a portion of your future income for a set period of time, up to a maximum repayment cap.

If you’re considering an ISA, it’s important to understand how payments work and how costs compare against other financing options.

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What are income share agreements?

Income share agreements (ISAs) are a way to finance education or career training. Instead of borrowing a set amount and repaying it with interest, you agree to pay a percentage of your future earnings for a fixed period of time.

ISAs are usually offered by the school or training program. They’re most common among coding bootcamps, career training programs, and some colleges and universities.

ISAs may be a stronger fit for students who don’t have current income, can’t qualify for student loans with a cosigner, or are entering a program where graduates’ incomes vary widely, says David Kafafian, chief operating officer (COO) at Clasp, an employer-sponsored student loan repayment and recruitment platform.

How do income share agreements work?

When you sign an ISA, the school or ISA provider helps cover your education costs upfront. In exchange, you agree to pay a percentage of your future income for a set period of time.

You typically don’t start making payments until after you leave school or complete your program and your income reaches the minimum threshold in your ISA contract. If your income falls below that threshold later, your payments may pause.

ISA payments can rise or fall with your income. You’ll continue making payments until your payment term ends or you reach the payment cap, whichever comes first.

The income share percentage is important, but it’s not the only number to review. Before signing an ISA, make sure you understand these key terms:

• Minimum income threshold: Also called your “income base”, this refers to the minimum income you must earn before payments begin. If your income drops below this amount, your payments may pause.
• Payment term: How long you’re required to make payments. Some ISA terms may last 10 or 15 years, for example.
• Payment cap: The most you can be required to repay. This may be listed as a dollar amount, a multiple of the amount financed, or an estimated APR.
• Payment window: The maximum amount of time your ISA can remain active. This is often longer than the payment term because it can include periods when your payments are paused.  
• Prepayment rules: The rules for paying off your ISA early. Some ISAs may charge fees or apply restrictions if you prepay.

How much can ISAs cost?

The cost of an ISA depends largely on how much you earn after leaving school or completing your program. Since ISA payments are based on a percentage of your pretax income, higher earnings generally mean higher payments. Lower earnings mean lower payments.

If your income drops below the ISA’s minimum income threshold — because you’re laid off, unemployed, or take a lower-paying job, for example — your payments may pause. But those pauses can extend your payment window, which is the maximum amount of time your ISA can remain active.

Your total cost is usually limited by the payment cap listed in your ISA contract. This cap sets the maximum amount you can be required to repay.

Here’s an example of what your total payments could look like with a five-year term at different income levels, assuming you don’t hit the payment cap:

How do ISAs compare to student loans?

The biggest difference between income share agreements and student loans is how your payments are calculated. With an ISA, your payments are based on a percentage of your future income. With a student loan, your payments are based on how much you borrowed, plus interest.

Here’s how income share agreements compare with federal and private student loans:

Pros and cons of ISAs

Details on the pros

• Can help you start or finish school: An ISA can help cover upfront education costs if you don’t have enough savings or other financial aid.
• Payments may pause if your income is low: If your income falls below the ISA’s minimum income threshold, your payments may pause until your earnings increase.
• No traditional interest charges: ISAs don’t charge interest the way student loans do, though your total repayment amount can still be high depending on your income and payment cap.

Details on the cons

• Higher income means higher payments: If your earnings increase after your program, your ISA payments will increase too.
• You could pay more than you borrowed: If you earn a strong salary after completing your program, you may repay more with an ISA than you would with a traditional student loan.
• Terms can be hard to compare: ISA contracts can vary by provider, so it may be difficult to know whether you’re getting a better deal than a student loan.

Are income share agreements worth it? 

An ISA may be worth considering if you need funding for school or career training and want payments tied to your future income. This can offer some flexibility if your income is low or unpredictable, since payments may pause when your earnings fall below a certain threshold.

But an ISA isn’t automatically a safer or cheaper option just because it isn’t structured like a traditional loan.

“Perhaps the biggest misconception that consumers hold is that if something is called something other than a ‘loan’ it automatically avoids the very tradeoff that all loans represent,” says Ethan Aiem, financial adviser and chief executive officer (CEO) of Klendify.

In other words, you’re still agreeing to give up a portion of your future income in exchange for funding today. Whether that tradeoff makes sense depends on the contract terms, your expected income after the program, and what other financing options are available to you.

“Everything in financing requires that you give something up for what you’re receiving,” Aiem says. “And it's not whether an ISA is ‘good or bad,’ but whether the terms make sense given what one can realistically expect for their finances down the line.”