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To understand how an Income Share Agreement (ISA) works in practice, keep scrolling to follow three different borrowers on their ISA journeys.
Earnings Path: Stable
Emma needs help paying for school. Rather than taking out a loan, she takes advantage of an Income Share Agreement (ISA) program.
With an ISA, Emma receives money for school and agrees to pay a percentage of her income after graduation.
The key terms of this agreement are:
Emma receives $10,000. When she earns more than the $40,000 income threshold, she pays 5% up to an annual payment limit of $5,000.
Her ISA terminates once she has either made 72 monthly payments, reached the total payment cap of $15,000, or the 10 year contract term is over.
We’ll start tracking the three ways Emma’s ISA could conclude from here, which are:
1. By exceeding the max. contract period,
2. By reaching the max. number of payments, and
3. By meeting the total payment cap
After graduation, Emma finds a dream job. The pay starts low, but there are many opportunities for advancement.
Luckily she doesn’t have to make any payments, since her earnings are less than the ISA’s $40,000 minimum salary requirement.
Before long, Emma receives her first promotion and her earnings exceed $40,000, which means her monthly payments of 5% of her salary begin.
She is happy in her job, staying with her employer for many years, paying gradually increasing amounts as her salary increases over time.
As Emma continues making payments, she moves closer to completing her ISA through one of the three triggers.
Seven years after graduating, Emma makes her 72nd payment, triggering the end of her ISA obligation.
Emma took a dream job with a lower initial salary, knowing that her ISA payments would be on hold while she invested in her long-term career.
Emma’s payments were always affordable, with higher payments coming later as her career and salary took off.
She met the maximum number of monthly payments, meaning that she left the ISA obligation before the 10 year maximum contract term.
This tool is meant only to provide a brief explanation of how ISAs can work in practice.
As with loans and other financing options, individual ISA contracts will vary and may include additional terms not discussed here such as: prepayment options, emergency forbearance, late payment penalties, among others.
Always review the specific terms of your financing options and choose the one that is the best fit for you.
Her ISA ended after she made the required number of payments.
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