Income-Share Agreements(ISAs) – Be Wary of Recommending These to Your Students – A Cautionary Tale

Some schools are now offering Income-Share Agreements (commonly called ISAs) as a new alternative to traditional student loans to help students fund their college educations. These are agreements where the student agrees to pay a portion of their post-grad salary towards paying back any amount of money given towards the students tuition and other college costs. Although ISA providers have advertised their products as an alternative to loans, the Consumer Financial Protection Bureau, or CFPB, a federal regulatory agency, has said that ISAs are indeed student loans. An income share agreement is a student loan in which you receive money to fund your education or training. In return, you promise to pay the ISA provider a fixed percentage of your income for a set amount of time after you finish school. You may repay more or less than the amount you received, depending on your agreement’s terms.

A recent Yahoo story shed light on some of the downside of taking an ISA to fund your students college education. When mom-of-three Patricia Feldman decided on helping fund her son’s engineering degree at Purdue University, she didn’t expect him to graduate owing nearly $100,000 to a loan servicer in addition to several federal student loans.

Purdue’s Back a Boiler program, launched in 2016, offers ISAs to students seeking alternatives to traditional federal and private student loans. Feldman’s son took out a $10,373 ISA for the 2018-19 academic year, and a $29,491 ISA for the 2019-2020 year, according to documentation seen by Yahoo Finance.

That $39,864 loan ballooned to $99,660.50 as of January 2022. You can read the full story here:

If your students are considering this type of funding you may want to send them this story and remind them of the old adage “nothing is for free” and “if it sounds too good to be true it probably is”.