Income Share Agreements (ISAs) are still a relatively new way to pay for your education. Over the past few years, they've become a popular option for coding bootcamps and colleges alike, but not all programs or ISAs are equal, and just like with any major financial decision, you should carefully consider which option is best for you and your personal situation.
We'll break down some things you need to consider when evaluating this new financial instrument – and whether or not it would be the right option for you at Covalence or elsewhere.
What is an ISA?
In the simplest terms, an Income Share Agreement (ISA) is a contract in which you agree to pay for your education with a fixed percentage of your monthly income after your educational program ends. Payments are only made when the student is employed above a minimum income threshold. If you're below that threshold, you aren't making payments. If you meet or exceed that threshold, payments continue for a fixed number of months (called the payment term) or until the total amount paid reaches a predetermined maximum (called the payment cap).
Why might you consider an ISA over fixed-rate financing or paying upfront?
It minimizes your downside risk.
If you aren't earning any money at all, you don't have the ability to pay for your basic necessities to live much less repay a loan.
Most financial instruments, however, frankly don't care. That bill comes due every month at the same time, and if you don't pay it, you're penalized with fees or accrued interest – or both – and before you know it, that little loan becomes a little pet you're tending for the rest of your life.
An ISA minimizes that risk since you won't make any payments if your income is below the minimum income threshold set in your ISA, and if for some reason you never meet that threshold (which is the absolute worst outcome), your ISA expires after you exceed the maximum number of deferred payments. So whether you're focused on your education or the job search after, you don't have to worry about paying your ISA until you're actually earning some income.
You don't need to pay any tuition upfront.
Not everyone has the luxury of paying for their education out-of-pocket or with scholarships. It's just a fact of life, but that fact shouldn't exclude you from pursuing something that can change your life.
If a coding bootcamp is your path to success but you aren't earning any (or much) money right now, an ISA may be the perfect tool for you to pay for this education after you've received it without breaking the bank or adding any stress about making minimum or monthly payments later (before you've started earning income).
Aligned incentives between you and your school.
The true merit of an ISA is based in the incentive alignment between a student and their school.
Simply put: if you aren't successful after a program, the school itself isn't paid, so it's in the school's best interest to ensure that (1) your education will deliver on its promise of allowing you to find gainful employment afterward, and (2) that your outcome and earning potential is as high as possible because the school will also be repaid more in the ISA.
The more you earn, the more the school earns (up to the predetermined payment cap). Win-win.
On the flip side, if you aren't successful and you aren't getting paid enough to meet the minimum income threshold, the school isn't paid, either. Lose-lose.
With an ISA, it's in the schools best interest to ensure you're successful. (At Covalence, we maximize each student's chance of success, regardless of how they pay us; however, the incentive structure of the ISA itself still stands.)
Why might you consider other payment options instead of an ISA?
If you want to pay the least amount possible towards your education.
You're most likely (but not always) going to pay less in total costs for your education if you have the luxury to pay upfront. In some situations, you may even pay less with a more traditional financial instrument, like a fixed-rate loan, but you'll need to do the math and account for all fees, interest, and other considerations when evaluating those options. Either way, sometimes you can come out paying less with something other than an ISA; if that's what's most important to you, consider other options.
If you're already earning enough money to meet or exceed the minimum income threshold.
What a lot of our competitors like to leave in the fine print is the fact that the ISA doesn't care about what kind of job you have that earns any amount of income. All the ISA cares about is whether or not you meet or exceed the minimum income threshold. If you do – regardless of how you earned that income – you must make repayments. So if you're someone that's still working while going through this program – maybe you're a high earner looking for a career change – then an ISA is probably not the best fit for your situation. You would be better off with another payment option, like paying upfront or with a tuition-installment plan.
If you're okay with making monthly payments regardless of your income (or lack thereof), and you're more comfortable with fixed payment amounts.
Some people don't like uncertainty. They prefer knowing exactly what they're going to pay every month, or they may want lower monthly payment amounts than an ISA would allow, and they find great comfort in being able to budget that amount and what it would take to pay-off that financial obligation. If that's you, you'd probably be better off with a fixed-rate financing option, like the one we offer with Ascent.
What does this mean for prospective students at Covalence?
We're excited to offer ISAs for our immersive Catalyst program students. We took our time evaluating the landscape of ISAs to determine whether or not they would be a viable (and valuable) payment option for our students before we decided to implement one. We wanted to ensure that our ISA was a useful tool for our students to use in order to improve their odds of success. The last thing we wanted to do was jump on the bandwagon of yet another potential marketing gimmick, and we also did not want to convey preference for one payment over another.
We've partnered with Leif, an industry leader when it comes to issuing and servicing ISAs, to provide extremely competitive ISAs for both our full-time and part-time immersive Catalyst programs.
At a high level, you'll only make payments if you're earning at least $40,000 per year, and your payment amount will be 12% of your pre-tax income.
Before we go any further with the technical details, we think you can understand everything you need to know about our ISA terms with this payment estimator:
We like this tool because it allows you to intuitively understand the benefits and risks of an ISA without any further explanation.
- An ISA mitigates your downside risk: if you aren't earning any money, you won't be making any payments.
- It also aligns our mutual interests in the most natural way possible: the more money you earn (i.e., the more successful you are after our bootcamp), the more you pay us – up to a limit (called the payment cap). Therefore, it's in our best interest to ensure you're equipped to be as successful as possible.
There are guardrails in place, of course. For most students, the most common guardrail they'll encounter is the payment term, which is the maximum number of payments you would ever make while paying your ISA. In our case, that's 24 months.
The second, less common guardrail is the payment cap. For our Catalyst programs, the payment cap is $17,100. At first, this sounds like a lot more than our normal tuition – and, make no mistake, it is (if you have the alternative luxury of paying upfront) – but if you're able to earn enough to hit the payment cap within 24 months, that means you were able to secure employment after our program that paid you at least $71,250 per year. You can check our math with the slider above.
To top it all off, even if you end up hitting that payment cap, you're still coming out ahead when our Catalyst program is compared to our competitors' options – it's even less than their upfront tuition amounts.
Put another way: the maximum amount you would ever pay Covalence with an ISA is less than the minimum you would pay at other options. Think about that.
Moreover, both guardrails work together, and you only need to "bump into" one of them: either hit the payment term or the payment cap.
Let's break that down into a few examples:
- Payment Term: An unemployed Joseph Dirt enrolls and graduates from our full-time Catalyst program, and it takes him 3 months after graduation to secure any form of employment. His starting wage is $3,000 per month (or equivalent to $36,000 per year before taxes). He won't make any ISA payments because he did not meet or exceed the minimum income threshold as defined in his ISA. However, after 3 months on the job, Joseph gets a raise, which brings his pay up to $3,334 per month (or equivalent to $40,000 per year). Now that he has reached the minimum income threshold, he will begin paying $400 per month as a part of his income share agreement, and even if he only maintains that income for two years, he will satisfy the requirements of his ISA contract after he hits the payment term of 24 months, and his total payment amount will be $9,600 ($400 x 24 months).
- Payment Cap: An underemployed Robin Doubtfire juggles several part-time jobs and side hustles to pay the bills; she's eager to make a career change into something with upward mobility and steady pay. Currently, she's working between part-time and full-time hours while she earns $15 per hour as a barista in addition to some extra money with side gigs as a 1099 contractor. Her annual gross income is approximately $30,000 per year. She enrolls in our part-time Catalyst program and chooses an ISA as her payment option. After 6 months, she graduates from our Catalyst program, but because she never met the minimum income threshold during that time, she hasn't made any payments toward her ISA yet. After 4 months on the job hunt, she's offered her dream job with a starting salary of $85,500. Robin now begins making monthly payments of $855 toward her ISA. Because of Robin's salary, she will hit the payment cap of $17,100 before she hits the payment term. In fact, she will only make 20 payments if she maintains her new salary of $85,500 for that entire time. If she gets a raise, she would repay her ISA in an even shorter timeframe because she would hit her payment cap sooner.
- Neither: In an unfortunate and very unlikely alternate universe, Robin never finds that dream job after graduating from our Catalyst program, and she never earns over $40,000 for five years after graduating. In this very unlikely case, Robin never makes a single payment toward her ISA, and after 60 months, it expires.
Obviously, these are only examples to demonstrate a few use cases as well as the utility of ISAs. "Your mileage may vary", as the Internet Meme-lords say, but it's ultimately up to you to determine whether or not an ISA is your best option.
If you're still unsure, we're here to help, and we're happy to discuss ISAs or any other option you may be considering when you schedule a consult with us during your personalized admissions process.
Here's the bottom line:
Your situation is unique. Your goals and aspirations are just that: yours, and you're the only one that can realize them.
Traditional educational pathways and financing mechanisms force you to meet them on their field on their terms. They don't care if you can afford that college tuition or if that degree you thought was a good idea is going to help you find gainful employment. They'll give ya that loan, plus some extra spending money to boot, and they'll come knocking when it's time to pay up – and the interest will keep accruing while you're struggling to make ends meet, wondering why you even went to college in the first place.
At Covalence, we strive to meet you on your terms.
We believe that's the best way to help you in your current situation to help you realize your goals and your aspirations, and we provide an ISA as one of several ways to pay for our career-changing programs because for some students it's the best option for them – and that's what matters.
If you're interested, learn more about our Catalyst Full Stack Development bootcamp here.
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