Because payment levels are set based on a percentage of income, Income Share Agreements resemble income-driven loan repayment plans such as those used by the U.S. Department of Education. But an Income Share Agreement is not a loan. Unlike student loans, Income Share Agreements do not require or involve:

  • A fixed, principal balance (e.g., the original funding amount) that must be paid down
  • Perpetual debt that lasts until the balance has been paid off
  • Interest rates
  • “Negative amortization,” a term that describes when the principal balance of a loan rises because the student’s payments are less than the interest due
  • The use of student or family credit scores

The exact structure and terms of an Income Share Agreement can and will vary based on the education program, the investor, and potentially the individual.  This is a very high touch product that requires custom inputs and bespoke terms. However, these agreements generally include all of the following parameters:

Funding Amount

  • The amount of the upfront payment, which is not to be confused with a principal amount on a loan

Payment Amount (a.k.a. Income Share)

  • The percentage of earned income that will be paid (usually calculated using monthly earned income)

Payment Periods

  • The fixed number of payment periods over which payment will be owed (stated in months or years)

Contract Term

  • The maximum term over which payments will be owed, after which the agreement is terminated regardless of the number of realized payment periods

Minimum Earnings Threshold

  • The minimum earnings amount that must be achieved for payments to be made (often set at $20,000/year)

Payment Cap

  • The maximum total amount that can be paid in aggregate (for example, a payment cap of 2.5x the funding amount could be set to protect high earners)

Income Share Agreements will not replace traditional student/consumer loans, but will rather serve as an alternative model whose prevalence varies based on the application and the needs of a given customer segment.  For individuals who cannot easily bear the risk that a given higher education program will not deliver a financial outcome that offsets the upfront cost, or for individuals who can no longer access affordable loan financing for whatever reason, Income Share Agreements will serve as a critical alternative.

The specific terms of each Income Share Agreement may vary but all agreements will have a Contract Term, after which the agreement will expire and the recipient will have no further obligations.  This contract term is pre-defined and is not dependent on the number of payments or total amount a recipient has paid.