What Are Income-Share Agreements (ISAs) and How Do They Work for Students?

Income-share agreements (ISAs) are a financing alternative that shifts risk from the borrower to the sponsor: instead of borrowing a set dollar amount and repaying principal plus interest, a student receives money up front and agrees to pay a percentage of their future earnings for a fixed period or until a maximum repayment cap is reached. ISAs are not federal student loans, and their terms vary widely by provider—private companies, bootcamps, and a small number of universities offer them.

In my practice helping students and families evaluate educational financing, I’ve seen ISAs reduce near-term cash strain and align incentives between schools or programs and student outcomes. But they require careful comparison—details like income thresholds, percentage rates, repayment caps, and tax treatment change the math materially.

How a typical ISA is structured

  • Upfront payment: The provider pays tuition or living costs directly to the school or the student.
  • Income share: The student agrees to pay a fixed percentage of their gross or net income (commonly 4%–20%) for a defined term, often 2–10 years.
  • Income threshold (deferment): Payments typically start only if the graduate’s income exceeds a threshold (for example, $30,000/year).
  • Repayment cap and term limits: Many ISAs include a maximum total repayment or a term limit; payments stop once the cap or term is reached, even if the student hasn’t repaid the principal-equivalent amount.
  • Forgiveness provisions: Some ISAs include forgiveness for prolonged unemployment, disability, or very low income.

Example, simplified: An ISA pays $15,000 for tuition. The student agrees to pay 10% of earnings for five years with a $25,000 cap and a $30,000 annual threshold. If the grad earns $50,000 in Year 1, they pay $5,000 that year (10% of $50,000); payments continue until the cap or term ends.

Key differences from traditional student loans

  • Payment variability: ISA payments scale with income; loan payments are fixed (unless on an income-driven plan).
  • No principal/interest labels: ISAs are contractual revenue‑share arrangements, not loans (though some legal consequences can be loan-like).
  • No federal protections by default: ISAs are generally private contracts and are not the same as federal student loans—so they don’t qualify for federal loan forgiveness or standard income-driven repayment plans.

Who offers ISAs today

  • Private ISA companies and intermediaries (for example, Vemo Education acts as an administrator for some programs).
  • Postsecondary institutions and select bootcamps. Purdue University’s “Back a Boiler” program was an early major university example; many coding bootcamps and vocational programs also use ISAs.
  • Employer-sponsored or nonprofit programs occasionally pilot ISA-style funding.

Authoritative resources: the Consumer Financial Protection Bureau (CFPB) has published consumer-facing material describing ISA structures and risks, and university program pages (for example Purdue’s Back a Boiler) detail their terms. See CFPB: “What is an income share agreement?” and Purdue Back a Boiler for program specifics.

Pros (why students choose ISAs)

  • Predictable downside for low earners: If you earn below the threshold, payments may be paused or not required.
  • No monthly fixed payment pressure in low-earning years: Payments flex with income.
  • Alignment of incentives: Providers and schools are incentivized to help students find jobs, since returns depend on graduate earnings.
  • Simpler for nontraditional paths: Short-term programs (e.g., coding bootcamps) can attract students without building traditional loan debt.

Cons and common risks

  • Potentially more expensive if you earn a high income quickly: A percentage of a high salary can exceed what traditional loan interest would have cost.
  • Terms can be opaque: Variations in whether income is gross or net, how bonuses are counted, and which income sources are included can change your liability.
  • Limited consumer protections: ISAs do not automatically include federal loan borrower protections (deferment rules, discharge options, or income-driven forgiveness).
  • Credit and collection: Nonpayment or disputes can affect credit and trigger collections depending on the contract; practices vary by provider.

Regulatory and tax considerations (practical guidance)

  • Regulation: As of 2025, ISAs operate largely under state contract law and federal consumer-protection rules; there is no comprehensive federal ISA statute that standardizes terms. The CFPB and state regulators have examined ISAs for potential consumer harms and have encouraged transparency and standardized disclosures.
  • Taxes: The IRS has not issued definitive, ISA‑specific guidance that treats all ISAs one way. Typically, payments under an ISA are not “student loan interest” and therefore are not deductible under the student loan interest deduction rules in Publication 970; however, tax treatment can vary depending on how the contract is structured and how the provider reports payments. Always consult a tax professional before assuming a tax deduction or tax treatment (see IRS Publication 970 on student loan interest).

How to compare an ISA to loans: practical checklist

  1. Read the arithmetic: Estimate your likely earnings over the repayment term and calculate total payments under the ISA percentage and cap. Compare to loan amortization schedules for federal and private loans at likely interest rates.
  2. Check the income definition: Does the contract use gross wages, adjusted gross income, or something else? Are bonuses, stock, tips, or contractor income included?
  3. Confirm the income threshold and geographic adjustments: Is the threshold fixed, indexed to inflation, or adjusted by region or occupation?
  4. Look for caps and forgiveness clauses: What is the maximum you’ll pay? Are there unemployment or disability protections?
  5. Understand reporting and collection: What happens if you fail to report income? Can the provider garnish wages or pursue legal remedies?
  6. Ask about transferability and cosigners: Can the ISA be assigned to another company? Are cosigners required, and do they bear legal liability?

Sample back-of-envelope comparison

Assume an ISA: $20,000 paid up front; 8% of income for 8 years; $35,000 repayment cap; $30,000 annual threshold.

  • If you earn $40,000/year: annual payment = 8% × 40,000 = $3,200. Over eight years (if income stable at $40k), total paid ≈ $25,600 (< cap).
  • If you earn $80,000/year: annual payment = $6,400. At that rate you’d hit the $35,000 cap in ~5.5 years and pay more than many loan scenarios.

This is why projecting multiple income scenarios matters.

Who benefits most from ISAs?

  • Students in programs with strong job-placement outcomes and predictable starting salaries.
  • Risk-averse students who want payments tied to earnings rather than fixed obligations.
  • Short-term training programs and bootcamps where federal student loans aren’t available or are impractical.

Who should be cautious?

  • Students expecting high earnings quickly may pay more than with a low-interest loan.
  • Those who need the federal loan protections (deferment, loan forgiveness programs like Public Service Loan Forgiveness) should avoid ISAs as a full replacement for federal loans.

Practical tips before signing an ISA

  • Get the terms in writing and have a trusted advisor or attorney review the contract.
  • Run multiple earnings scenarios and compare to federal and private loan quotes.
  • Confirm how life events (unemployment, parental leave, disability) affect payments.
  • Ask whether the program reports to credit bureaus and how disputes are handled.
  • Compare with alternatives—scholarships, grants, federal student loans, and private loans—so you know trade-offs.

For comparisons and deeper context on alternatives, see our related articles: “Income-Share Agreements vs Student Loans: Pros and Cons” and “Alternatives to Student Loans for Short-Term Certification Programs.” These pieces examine when ISAs can be an effective tool and when traditional loans or grants make more sense.

Final thoughts and disclaimer

ISAs can be a useful tool for some students and programs—but they are not a one‑size‑fits‑all solution. In my work advising clients, the best outcomes come from careful scenario analysis: estimate realistic earnings, ask precise contract questions, and compare total costs against federal and private loans. Because ISAs are private contracts and tax and regulatory treatment can vary, consult a financial planner or tax advisor before you sign.

This article is educational and does not constitute personalized financial, legal, or tax advice. For program-specific terms, read the ISA contract and the provider’s disclosure documents. For regulatory updates and consumer guidance, see the Consumer Financial Protection Bureau and your state consumer protection agency. For taxation of student financing and the student loan interest deduction, consult IRS Publication 970.