How To Complete your Income Share Agreement: Required Payments
Learn how to complete your Income Share Agreement with required payments
The price of tuition is still rising, and outstanding debt continues to go up every year. At 1.6 trillion outstanding loan debt in the United states has become the second highest source of household debt in the country.
Income Share Agreements (ISAs) are being used as an alternative to traditional student loans and provide a promising solution to the crisis.
An Income Share Agreement works differently than private student loans; students don’t have to worry about paying back a principle or mounting interest. Besides the absence of growing interest and generally, no upfront payments, a significant benefit of Income Share Agreements is the fact that there are certain instances when your payments are paused or deferred.
ISAs keep students from paying for educational experiences that don’t create value for them in the labor market, aligning the risk and rewards of education and creating better outcomes.
Because of how different ISAs are in regard to repayment, it’s important to educate students on the different ways to pay back their ISA. We have a whole guide on how to finish paying an ISA.
After reading this post, if you have any other questions about Income Share Agreements, check out our ISA page.
With an Income Share Agreement, students don’t have to worry about paying back a principle or mounting interest. By far the biggest differentiating factor between ISAs and traditional student loans, other than the protections built-in, is the way they’re satisfied.
With federal loans, you have a principal, the borrowed amount, and an interest rate. You pay back the amount of the principal plus any interest you accrue while paying it back.
With an ISA, it's a bit different; there isn’t a principal that one needs to keep track of or payback. An ISA is an agreement that, after graduation and as long as you’re earning an agreed-upon income, you pay a percentage of your income back to the school (or lender).
There are three different ways to finish your ISA. Required Payments, Payment Cap, and Payment Window. In this blog post, we’ll be covering the first distinct way you can finish your ISA.
Complete the Required Payments
The most common way for one to satisfy one’s ISA obligation is to make the required number of monthly payments.
With an ISA, you pay back a percentage of your earnings each month for a set number of months. Each of these payments is considered one of your Required Payments.
If you pay all the Required Payments outlined in your ISA contract, your contract is satisfied!
For example, let’s say that outlined in your ISA, you are to pay 10% of your income for 24 monthly payments. (this is the number of Required Monthly Payments)
According to your income, let’s say you pay $500 per month to your ISA. If your income doesn’t change for 24 months and you make each of those $500 payments each of those months, your ISA is finished!
As you can see, there is no amount of money that you’re hacking away at. Just make each of those Required Monthly Payments based on a percentage of your income and your ISA is completed!
There are several important things to remember when it comes to paying off your ISA through required payments.
Extra payments don't count as required payments.
If you decide to pay off your Income Share Agreement faster, you’ll have to work towards your Max Payment Cap. You can learn more about the Max Payment Cap here. The Max Payment Cap is the most you can ever pay towards your ISA. Extra payments count towards your Max Payment Cap, so if you would like to pay off your ISA earlier than the months outlined in your Required Payments, you should start paying towards the Payment Cap.
The number of Required Payments will always be the same.
Even if your monthly payments fluctuate as your income goes up or down, your required number of payments will always be the same. They will always be based on what was in your ISA contract with your lender.
For example, if you have 24 Required Payments you only have 24 monthly payments to make regardless of whether the individual monthly payments are $200 or $800.
Months in deferment do not count towards the number of required payments.
If you have to go into deferment for any reason, whether it be job loss or medical issues, your monthly payments are paused. When your payments are deferred, those months do not count towards your Required Payments. They do however count towards your Payment Window, which you can learn more about here.
If you’ve ever wondered how to finish paying your ISA through required payments, hopefully, we’ve been able to answer all those questions! If you’re ready to jump into a new career using the power of an ISA, check out all the amazing online training programs that offer an ISA on our student's page here! If you’re interested in offering an Income Share Agreement at your program click here to schedule a meeting with one of our ISA specialists.