We’re going to make a bold statement, that could get us into trouble. But it needs to be said: A college education is not the right path for everybody. For years, the value of a college degree has been coming into question, especially for the amount of money students spend earning it. Still, college is probably the primary choice after graduating high school, and with costs rising even higher, it is essential to understand your paths to pay for it. This is where an ISA student loan comes in. Most people are familiar with the federal loans available through FAFSA, but an Income Share Agreement (ISA) is a new way to pay back loans.
There are some very steady, well-paid professions that don’t require a college degree. But many students won’t be able to resist the call of the college life promised throughout high school or the pressure from parents to continue education. And there are certain professions where your degree is 100% necessary.
If you’re set on going to college, it’s important to understand the options you have available to pay for that education, including an ISA student loan.
Know the pros and cons of an ISA student loan
The income share agreement is very much what it sounds like. With an ISA student loan, the school will give you money for your education. In turn, you agree to give them a certain percentage of your future paychecks or salary.
The mistake is to believe that this is an alternative to student loan debts. The fact is, you are still borrowing money, and you still need to pay it back.
There are some benefits to this arrangement, though. An ISA student loan isn’t due until you make a quality salary and can begin to pay back some of the debt. This can be advantageous because it takes off some of the pressure to take any job you can get to start paying back the loan.
On the other hand, the contract usually dictates that the percentage share of an ISA must be met for a certain period. So, if you were to get great employment after graduation and make a high salary, the percentage you pay could be a lot more money than you might have paid for a traditional student loan.
In other words, as you earn more, you pay more.
Know the difference between an ISA student loan and traditional student loans
The big difference between a traditional student loan and an ISA loan is in that percentage share. With a conventional student loan, you have a specific amount that you borrowed, and need to pay back over time. You will pay back more because of interest, but all the terms of the agreement are there in front of you.
With an ISA student loan, there are some unknowns. Mainly, what job you will have and what your salary will be. This can make a huge difference in what you end up paying over the term of the ISA loan. Some ISAs come with a payback cap, but those that don’t could take a lot of money from you.
It isn’t easy to project exactly what the future will look like. Still, if you have an idea of your future career, you can project your earnings and get a better picture of what you would pay with an ISA loan. With that information, you can begin to learn which option is better for you.
Have you considered an ISA, or does traditional financing for college make more sense to you?