Income Share Agreements

Categories : Financial, News
June 21, 2019

Have you ever heard of an Income Share Agreement? If you have not, you are not alone. It is an innovative way to pay for college when all other options are exhausted. This type of plan is currently only offered at a few colleges like Purdue University and the University of Utah.

The way an Income Share Agreement works is that in lieu of taking on loans, students sign a contract that pledges a certain percentage of their income once they graduate and get a job back to the University. The amount and the term varies by major. For instance, in computer science, a graduate would pay a lower monthly rate for less time based on the assumption that their income will be higher. Conversely, an English major will pay a higher percentage of their income over longer period of time based on their lower earning potential. The most popular major that uses this program at Purdue is Biology. Biology students end up paying about 16% of their annual salary back to the school for 112 months, or $550 per month.

Income Share Agreements are not for everyone. The are largely unregulated, there is no early payoff option, and the are 100% private meaning there is no government forgiveness option. However, they provide an opportunity to finance higher education that may not be available for certain students, and they won’t saddle you with debt for 20-30 years. Despite the very small number of schools currently using this program, it is a program that I could see becoming more popular in the future.