Student loans are not as popular as one might think. Yet the amount of student loan is skyrocketing as are interest rates, and students are looking for alternatives. ISA or Income Sharing Agreement is one such alternative. Some say ISAs are just another way to put you in debt while others welcome the alternative to education loans. We decided to take a closer look.
If you want to know more about what ISA is and how it works read this:
Criticism against ISA
As we said, there’s considerable criticism of ISA agreements – but that’s true of anything new. So let’s take them with a pinch of salt. With that said, here are some criticisms levied against this new concept called income share agreement.
No Fixed EMI
One of the reasons why people hesitate to enter into an ISA is because the EMI is not fixed. Your EMI is related to your salary – and often expressed as a percentage of your base, gross, or net pay. The thing to remember is that if your ISA increases with your salary, it will also decrease when your salary is low – or unfortunately you quit or lose your job.
Little or no deferment
Another criticism is that ISAs do not have any deferment, moratorium, or forbearance period. That’s not completely true. Many ISAs let you pause payment if your income drops below a certain level. However it is also true that some ISAs take into account income from other sources in their computation. This means that even if your salary drops but you are receiving dividends or interest on investment, you may have to continue to pay your EMI – or income share.
No Tax Deduction
Under a student loan, you may be allowed certain tax rebates on your EMI provided you meet certain requirements. Of course this depends a great deal upon your place of residence and where you are enrolling for your course. This does not happen under an ISA because technically they do not charge you any interest. Besides many claim that the interest is factored into the course fees.
So as you can see, although there is considerable criticism, ISAs are not all bad. Besides, ISAs do have some distinct benefits.
Benefits of ISA
So how does an income sharing agreement benefit you? What value do you get from an ISA that you do not get in a student loan? That’s the question that everyone is asking – especially when it comes to income share agreements in India where the concept is relatively new.
Income sharing agreements do not charge you interest. Your income share is simply a reimbursement of the tuition fee. Think of it as a 0% EMI for your course – you simply pay the course after you complete the course and begin earning. So your income share or EMI is that much lower.
Less Paper and Legwork
Getting an ISA is often easier than getting a student loan. If the institute of your choice offers ISA all you have to do is read the agreement and sign. If you want a education loan on the other hand, you may have to visit multiple financial and banking institutions to explore options, compare interest rates, and so on – so that you can get the highest amount of loan at the lowest possible interest.
Pay only when you can
Unlike student loans where the EMI is fixed and must be paid every month, under an ISA, your EMI – or income share as it is called – is tied in with your income or salary. This means that you pay only when you are able. This is a big advantage for students who are at the threshold of their career and do not have an assured income. Even after deduction of income share, you still have enough left for your needs and requirements.
When you take a student loan, you are putting yourself at risk because there is no assurance that you will get a job that will pay enough to fund your EMI as well as other expenses. Under an ISA however, you are almost definitely assured placement and a certain minimum pay package after you complete your course because after all the institute does want it’s money back and this is possible only when you begin earning.
In the initial years of your career you not only need placement but also direction. Questions like should I quit this job and take that one or should I ask for a pay rise will plague you. You’ll also need help researching potential employers, pay scales, and benefit packages. If you are under an ISA, your campus career counselling centre will be more than willing to help and guide you in your progress – because it’s to their benefit.
Income sharing agreements are not as bad as they are made out to be. But you should not enter into one blindly either. While on the one hand, they seem like the perfect answer to student loans – and a cheaper option at that – there is always a possibility of a hidden catch. Perhaps the biggest fear in the minds of the students is that their income share payments will never end.
To resolve these doubts we’re compiling a checklist of questions that you should ask education institutes before you sign your ISA. If you can think of any such questions please share them with us and we’ll add them to our list.
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