Everything about Income Share Agreements
Posted: January 16, 2022 / Last updated: January 22, 2022
“It’s a loan,” “It’s a predatory scam,” “It’s a financial product,” “It’s a free education,” “It’s a job guarantee,” “It’s a …”
If you look around the forums… you can tell that most people don’t really have a handle on what it is.
Here’s how Ivy described it in a Reddit thread.
We’ll be keeping this updated to help you understand how they work.
The consensus
First off: Here’s the history and collected knowledge from the Wikipedia article.
WARNING
If you’re considering signing an Income Share agreement, take it seriously.
(If you’re not, then don’t waste your time reading this;)
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The following is our research and our thoughts.
We’re going to explain the positive – and the negative things about ISAs. It’s not something to rush through.
Take the time to get really clear on what they are – and if they are an empowering and SAFE solution for you.
This page is new
We put this page together recently for some new students – and so, it’s “under construction.” We’ll be rounding it out over the week. : )
Income Share Agreement
Here’s how it works conceptually.
There are two parties. In this case, an educator/trainer/school – and a student/trainee.
Any quality education (materials, teachers, review, coaching, etc.) is going to cost some amount of money and time. Any realistic learning path is going to cost time and focus and the student’s follow-through.
Traditionally you paid for your education through years of apprenticeship by working for the master of their craft. Now we mostly just use money to pay for college or training courses.
But not everyone has money saved up for school.
An ISA (Income Share Agreement) sets up an agreement between the educational institution and the person receiving the education. The school agrees to delay payment until the student is enjoying a reasonable income (with the expectation that the education will be a driving force in making that income a reality). The student gets some portion (or all) of their education without payment – but is expected to share some of their financial success with the school as their repayment for the education they received.
In its most simple form: you pay for your education after you’re working in the field.
- The school shares their time and materials and efforts (which is a financial risk for them) (you might not do the work)
- you share a small portion of your financial success to pay for the education.
Another way to say it
- The school shares their knowledge and time and educational system
- you share some of your income afterward.
These are the terms you need to know
There’s a lot of fine print. (Ivy’s answer from Reddit fixed up for clarity)
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Threshold
Income threshold: the amount of money you need to be making before you start paying. You can’t pay for it if you have no money. You can’t pay for it if you don’t make enough to live.
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Percentage
The percentage is the amount of your income that you’ll share with the school after you’ve finished the program and have work paying above the threshold. This might say “a job in tech” but that is hard to determine. Answering phones at a bank might be a job in tech. The percent is usually before taxes. There are lots of details to consider. It’s also hard for people to understand that it’s variable. If you make a little you pay a little. If you make a lot you’ll pay a lot. but see the ‘cap.’
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Term
The term would be for how many months you’ll pay that percentage. That means that for 12 months, 24 months, 36 months, (or more) you would pay that percentage of your paycheck.
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Cap
At some point, there is a cap. That means that if you make a billion dollars that year, you would at max out at some amount of money and you’d never pay more than that.
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Duration
We’re not sure what they call this one {{double check}} … but some schools have 2 year period and we’ve heard others have a 20 year period.
In some cases – if you don’t find work within 2 years / well – then you don’t pay back the school. They didn’t do a very good job then, right?
But in other trickier language, you might not get a job for 4 years – or even 18 years – (during which time you may have had many other jobs and experience and teachers) – and they still have you on the line to pay them back at that time. (This is rare… but watch out)
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Some examples
I don’t know if this is still correct but it’s the only one I remember off the top of my head. Lambda was (at one time) 15% for 36 months with a cap of 30k. And the threshold was pretty low. I think It may have even been as low as 30k. I think it’s pretty fair to say that it was a “bad” ISA. And given that they’ve been publically outed for not being that great even more so. If you made 40k then you’d make 3.3k a month and you’d pay about $500 a month. that would leave $2,800 and then that would be taxed I think and you’d do that for 36 months. You’d only pay 18k in total and never reach the cap. If you made more money you would get to the cap and pay the full 30.
But not all ISAs are predatory. They can allow you to pay later and I believe that their goal is very positive. I’ll tell you as someone who has been working hard to figure out how to lower the barrier of entry to the school I work for, that it’s tough to find a plan that fair for the student and the school. We have a combo of upfront and ISA for this reason.
There are also a few other tricky factors. It’s often assumed that when the 24 months is up that you don’t own any of the money. But that’s not always how it’s setup. Someone posted on here the other day about one of the schools having a 20 year payback time period. Also, it doesn’t always work out as a job guarantee. If you quit or don’t get a job in “tech” and instead work at the car dealer then you’ll pay your percentage from that if you are above the threshold. There are a lot of details. But I do believe that ISAs can be a powerful tool for people who are serious about putting in the time and who can share that risk and success with their education team. We’re all trying to be better and learn.
I hope that helps. Have a lawyer look at it way before you sign it.
How you pay
As you could imagine, it’s not that easy to track who has a job and what their salaries are. So, the schools and teachers don’t have a spreadsheet that they are filling out by hand.
When you sign an ISA, you’re usually working with a third-party company that is providing it between you and the school.
The ISA company will have your bank account information and be aware of your income. This might feel invasive to some people. What if you inherit money? Does that count? We don’t know. Anyway, in many cases, they know when you hit your threshold of income – and they have your bank set up to automatically take a certain amount of it. In other cases, you make a monthly payment.
What happens if you don’t pay?
If you don’t make enough money to pay your ISA, then you shouldn’t have to pay it. Once the [[duration]] of your agreement is over, so is your obligation.
But what if you do make enough money and just choose to dodge them? We don’t really know the answer to this. We assume that your wages will be legally garnished or that your debt would be sold to a more aggressive collections company.
What if I take a job in another industry?
Many “coding boot camp” schools market their ISA in a way that says “If you don’t get a job in tech, you don’t pay.”
But – what is “tech” again? (no one knows)
Is answering the phone in an Amazon warehouse basement “tech?” Is uploaded photos to a website “tech.” Let’s get real on that one. You can say any job is a “tech” job if you want. You’re using that little computer in your pocket all day.
So – at PE we’re very upfront – that if you finish our course, and then decide you don’t want to do this stuff – and get a job at a car dealership instead (and you are making above the agreed-upon threshold) then you ARE going to pay your ISA. Because really, our education goes way beyond ‘coding.’ It will be a part of whatever job you take in the future.
But some schools / and ISA providers aren’t clear about what that means. And we’ve seen many graduates who went to intensive software engineering boot camps end up as “technical ________” (answering phones).
ISAs are a tool – and they can be used for good or bad
We spoke with a few watchdog groups about ISAs before setting up ours. They reached out to us after seeing Derek’s video “That “boot camp” is probably lying to you.”
One of them was The Student Borrower Protection Center. Groups like this are starting to pay close attention to how ISAs are being used. You can see what they have to say about ISAs.
In the end, it seems like the problem isn’t the ISA, but – the marketing and the way that’s it’s sold to students.
Paying for your education after you are financially stable – and prosperous in a career that the education helped provide – sounds great, right?
But paying 30k for a course that wasn’t right for you in the first place – and had stipulations and details in the fine print that will leave you in debt… and no confused and ashamed and disappointed – isn’t great. It’s super terrible. And – that’s what is happening to an alarming amount of people.
So – make sure you really understand what the agreement you’re making is. Have a lawyer look at it – and probably most importantly, make sure you are 100% sure you want to education to begin with.