RICHMOND, VA (WWBT) - So many people are burdened with heavy student loan debt that some colleges have started offering another way to pay.
They are offering Income Share Agreements, or ISA’s, which may be an alternative to help students avoid some high interest loans. An Income Share Agreement is when a student agrees to pay a percentage of his or her income for a set amount of time after college.
Here’s an example of how a sample ISA might compare to a student loan. If you took out a private student loan for $10,000 at 8 percent interest and pay it off over 10 years, you’d pay a total of $14,559.
Let’s say an ISA offers you $10,000 for tuition and you agree to pay 4 percent of your income after graduating for 10 years. If your average post-graduate annual salary is about $30,000, you might pay a total of $12,000 to repay the ISA. If your average salary is $40,000 a year, you might pay about $16,000 total. But no matter how high your salary, you would not have to pay more than a pre-determined cap.
Vemo Education in northern Virginia is among a few new companies in the country that help colleges arrange Income Share Agreements with students. Some of Vemo’s client colleges include Purdue University, Lackawanna College, Messiah College, Norwich College, and Clarkson University.
ISA’s are usually bankrolled through a school fund or investors, and the terms vary at each school.
Vemo CEO Tonio DeSorrento describes an example ISA at Messiah College.
“Students who opt into an Income Share Agreement pay $5,000 less in tuition. In exchange for that, they’ll give 3 percent of their income for seven years after they graduate. If at any point, they’re earning less than $25,000, they don’t owe anything,” said DeSorrento.
You heard that right. At Messiah, a graduate won’t have to pay until they’re earning at least $25,000 a year. On the flip side, graduates who earn higher salaries will pay more over the same seven years, until they reach the cap.
“If they’ve made payments for seven years and have paid less than $5,000, the agreement still ends,” explained DeSorrento. “And if they’re very successful financially, the most they’ll ever pay is $8,000.”
Amy Wroblewski just graduated from Purdue University and says the rate on her ISA is actually being lowered.
“Because my major that I graduated with and my career choice is different, it’s going to be a little under what was expected,” she explained. “So it will probably drop down to 4 percent instead of 4.8.”
Consumer advocates urge students to compare their financing options, pointing out that some Pay As You Earn Federal student loans may offer lower payments and a lower total repayment cost to students expecting lower incomes. And students expecting higher post-graduate salaries may find a loan offers them better terms.
But Wroblewski says her ISA gives her peace of mind.
“I feel great, in all honesty. I feel like I am able to pay for my loan, pay for rent and all the necessary things I need to do,” she said.
Not all colleges offer ISAs. The State Council of High Education for Virginia says no colleges in Virginia currently offer them.