Understanding Income Share Agreements at Coding Bootcamps

Understanding Income Share Agreements at Coding Bootcamps
Understanding Income Share Agreements at Coding Bootcamps

Introduction

Education in college is expensive and college expenses are only increasing every year. It is not easy for most students to afford education in an education system that runs hugely on money. Lack of finance shouldn’t be a constraint for someone willing to learn.

To help students who are having a similar struggle and need financial support, income share agreements or ISA is introduced. This contract will help students to pay for college and the students will have to repay only after graduation. This would be very beneficial in the present situation where people lost their income due to covid.

What are income share agreements?

Income share agreements are contracts. Here you receive funding for your education. In return, you have to dedicate a portion of your salary after graduation. That is, the money is repaid from your future salary. You have to agree with your  Income share agreement provided that you would pay a fixed amount of your salary for a fixed amount of time.

Income share agreements are provided both by colleges and also by private capital resources. Income share agreements are not student loans. You cannot use it as a replacement for undergraduate federal loans. Income share agreements are a much safer alternative for loans.

How do income share agreements work?

Different income share agreements can work differently as they are unregulated. In most cases, you will have to pay only after you passed the specific income threshold in salary. In cases where you might have lost your job during your repayment period, you can temporarily stop paying for income share agreements. The amount or the percentage you have to repay may differ for different income share agreements.

Some important terms used in  income share agreements are

  • The percentage of income that you will have to pay each month is called the income share percentage. Income share percentages for income share agreements for college students are usually 2 to 10 percent.
  • The specific income threshold or the minimum salary that you must earn to start your repayment to income share agreements is referred to as the salary floor. The salary floor typically refers to the expected salary you will earn after graduation. 
  • The maximum repayment amount that you have to pay for income share agreements is called the payment cap. A payment cap is an important factor that should be checked before enrolling in income share agreements. A payment cap is a function that depends on how much you have received for income share agreements. Checking out the payment cap is very important as there may be chances that you might end up in a scam and will have to repay a larger and unfair amount than what you have received.
  • The longevity or how much time the income share agreements last is called the repayment term. The repayment terms may vary and can last up to 2 years to 10 years.  Income share agreements usually calculate your repayment term based on the minimum salary you earn in a month. The repayment term might get extended due to lack of stability or if an unexpected situation occurred that might hinder salary.

Are income share agreements better than student loans?

Income share agreements are a better choice for students to pay for their college than student loans. Income share agreements act as a less expensive alternative to student federal loans. Student federal loans may impose higher interest and provide fewer choices to postpone the payment.

If you have access to student loans with lower interest or have access to lower interest loans due to your good performance in academics then you can choose student loans.

In Income share agreements there is no way you can reduce the percent taken from your salary for repayment. The amount to be repaid is much easier to calculate in student loans, but in Income share agreements it is based on the salary you receive per month and which in turn can affect the time taken to repay. Repayment for Income share agreements is much more flexible and less stressful than student loans.

Advantages of Income share agreement

  • You will only have to start repaying the Income share agreement if you have reached the minimum salary that the Income share agreement demands to have before repayment. This minimum income threshold is also known as the salary floor. Income share agreement typically has a minimum income threshold that must be met to start the repayment.
  • It is a much safer option. You do not have to pay in a situation where you have lost your job. No payments are kept due if you lose your job. In order to calculate the percentage of income you have to repay, you have to first have income. The repayment term, that is the time assigned to you within which you have to make payment is temporarily frozen. You can start repaying the Income share agreement once you have got into a new job and the new job has met the minimum income threshold.
  • Income share agreement is eligible for bankruptcy. Income share agreement is treated as a credit card debt, that is it is treated like an unsecured payment obligation. Just like credit cards, courts can dismiss the payment if you have filed for bankruptcy.
  • An income share agreement is less stressful than a student loan. Students loans have a fixed amount you have to repay in a certain amount of time but an Income share agreement is much more flexible. You will have to repay only when you have reached the minimum income threshold and you do not have to worry about paying back when you have a lower-paid job. It also shows flexibility in the time you have to complete payment in situations like you have lost your job.

One popular program offering the option to do payment after landing a job is Career Camp conducted by Coding Ninjas.

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Few Disadvantages of Income share agreement

Even though income share agreement reduces the risk of the students being unemployed and also provides long-term benefits like solving problems of unemployment and underemployment, it also has its own negative effects.

Sometimes income share agreements can be more expensive than student loans. In Income share agreements there is no way you can reduce the percent taken from your salary for repayment. For a high-paid job, the percentage remains to make it more expensive.

Frequently asked questions

When do my ISA repayments start and what if I get fired or leave a job in between?

Income share agreement starts repayment once you have been employed in a job that crosses the minimum income threshold or the salary floor. The amount to be repaid is calculated based on the minimum salary in a month, so if you lost your job, then you have no salary and hence this calculation is not possible. Your repayment will be temporarily stopped and the repayment term will be extended.

Key Takeaway

College expenses are increasing year by year and not all students can afford it. To help such students and give them financial support, an income share agreement has been introduced. It is not a replacement for student loans but acts as a better alternative for it. It is much more flexible than student loans.

Unlike student loans, students have to repay income share agreements only after getting a job after graduation. The repayment has to be made only if the salary of the current job crosses the salary floor. The amount to be repaid is calculated based on the minimum salary you get in a month. The repayment term is flexible and can be temporarily stopped in unfavorable conditions like loss of job.