An income share agreement, or ISA, is a contract in which a school, bootcamp, or private funder pays for your education or training upfront, and you agree to pay back a fixed percentage of your income for a set number of months after you start working. There is no stated interest rate and no fixed balance. If your income falls below a threshold written into the contract, you owe nothing that month. If it rises, your payment rises with it, up to a total dollar cap.
How the Arrangement Works
The provider funds your tuition or program costs. In return, you sign a contract promising a fixed percentage of your pre-tax income for a defined period once you finish and land a job. The percentage and the length depend on how much you receive and the expected earnings in your field. Programs that feed into higher-paying work often carry lower income-share percentages, because the provider expects to recoup faster.
Payments only begin once your earnings clear a minimum threshold in the contract. Below that, you owe nothing. Most contracts also include a total dollar cap so a high earner isn’t paying back a runaway multiple of what they received. When you hit either the cap or the end of the contract term, whichever comes first, the obligation ends.
The Three Numbers That Define Your Obligation
Three variables set the financial boundaries of every ISA. Read each one carefully before you sign, because together they determine your best-case and worst-case cost.
Income Floor
The income floor is the minimum you must earn before any payment is owed. If the floor is $40,000 and you’re earning $38,000, you pay nothing that month. Floors vary by provider and program.
Payment Cap
The payment cap is the most you will ever repay in total. It’s usually expressed as a multiple of the funded amount, often somewhere between 1.5 and 2.0 times what you received. On a $20,000 ISA capped at 2.0x, the ceiling is $40,000 regardless of how much you earn. This is what makes the maximum cost of an ISA knowable from the start.
Repayment Term
The repayment term is the window during which you owe payments when your income is above the floor. Terms commonly run from about two to ten years. If the term ends before you’ve reached the cap, the remaining obligation is forgiven.
How Your Payment Is Calculated
Once your income crosses the floor, the provider applies the contract’s percentage to your earnings. Some contracts use gross income; others use adjusted gross income, which is total income minus certain deductions like student loan interest and retirement contributions.1Internal Revenue Service. Definition of Adjusted Gross Income AGI is almost always lower than gross, so the same percentage produces a smaller check.
The arithmetic is simple. A 5% income share on $60,000 a year is $3,000, or $250 a month. On $80,000, it’s about $333 a month. Take a pay cut below the floor and the payment drops to zero. Providers generally require you to verify income with pay stubs or tax filings on a set schedule.
Pay close attention to how the contract defines “income.” Base salary is always in. Bonuses, commissions, equity, and one-time windfalls vary by provider, and the definition can move your total cost meaningfully.
How This Compares to a Student Loan
A traditional student loan has a fixed balance and a stated interest rate. You owe the same monthly payment whether you’re making $30,000 or $130,000, and missing payments triggers delinquency and default. An ISA has no interest rate and no fixed balance. Payments flex with income, and below the floor you owe nothing.
That flexibility isn’t free. High earners can end up paying back significantly more than they received, sometimes near the payment cap. Someone who struggles to find well-paying work may pay back very little, which is a better outcome than defaulting on a fixed loan. The risk shifts from borrower to provider, which is why providers are selective about which programs and applicants they fund.
Federal student loans have their own income-driven repayment plans that tie payments to earnings and family size, with forgiveness after 20 or 25 years of qualifying payments and additional programs like Public Service Loan Forgiveness. Those plans share the income-contingent idea with ISAs but come with statutory protections and standardized terms. ISAs are private contracts, and the terms vary entirely by provider.
Bankruptcy Treatment Is Unsettled
Federal student loans are notoriously hard to discharge in bankruptcy. Educational debts are excepted from discharge unless repayment would impose “undue hardship,” and that exception covers government-backed loans, obligations to repay educational benefits, and qualified education loans. Whether an ISA falls into one of those categories has not been definitively settled by the courts, though the statute’s reference to “an obligation to repay funds received as an educational benefit” could arguably reach ISAs.2Office of the Law Revision Counsel. 11 U.S. Code 523 – Exceptions to Discharge Providers have historically written their contracts to avoid classification as debt, but as regulators treat ISAs as credit, that distinction may erode.
What Happens If You Can’t Pay
If your income drops below the floor, the payment obligation pauses automatically. These pauses generally don’t extend the contract term or add charges. Once your verified income rises back above the threshold, payments resume. This is the feature that most distinguishes an ISA from a conventional loan, where forbearance often adds accrued interest to the balance.
Default is different. It usually means failing to report income or failing to pay while earning above the floor. The consequences resemble default on any other financial obligation: credit damage, late fees or penalties, and possible legal action. Some contracts include acceleration clauses that make the entire remaining obligation due immediately upon default. Check for that clause before signing.
Regulators Treat ISAs as Credit
For years, providers argued their products were “human capital contracts,” not loans, and therefore exempt from consumer lending rules. That argument took a serious hit in September 2021, when the Consumer Financial Protection Bureau took enforcement action against Better Future Forward for deceptive practices. The CFPB found the company had falsely told borrowers its ISAs were “not loans” and did “not create debt.”3Consumer Financial Protection Bureau. CFPB Takes Action Against Student Lender for Misleading Borrowers About Income Share Agreements
The CFPB’s position was blunt: “regardless of the name on the label, these products are credit and have to comply with federal consumer protections.” The consent order required the company to provide the disclosures mandated by the Truth in Lending Act and Regulation Z for closed-end credit, including the finance charge, amount financed, and annual percentage rate. It also classified the company’s ISAs as “private education loans” under TILA, which triggered the federal ban on prepayment penalties for such products.4Consumer Financial Protection Bureau. CFPB Better Future Forward Inc Consent Order 2021-09
That action didn’t declare every ISA a loan by rule, but it put the industry on notice. If a provider tells you their product isn’t a loan, that’s a claim the CFPB has already rejected in enforcement. Expect TILA-style disclosures from a reputable provider, including an APR equivalent that lets you compare the cost to a traditional loan.
Federal and State Rules
There is no comprehensive federal law specifically governing ISAs. The ISA Student Protection Act was introduced in the Senate in 2023 and would have set a federal framework with consumer protections, including a combined cap of 20% of income across all of a student’s ISAs, mandatory payment pauses for low-income recipients, a ban on acceleration clauses, contract termination upon death or permanent disability, and a limit of 240 required monthly payments within an overall contract duration of no more than 360 months.5Congress.gov. S.136 – ISA Student Protection Act of 2023 The bill did not advance out of committee, and no similar federal legislation has been enacted since.
A handful of states have their own rules. Illinois passed notable ISA legislation capping monthly payments at 8% of income, setting a minimum income threshold, and imposing an effective APR cap. Other states have reached ISAs through broader consumer protection or student lending statutes rather than standalone ISA laws. Protections depend on where you live and which provider you use, so check your state’s disclosure and rate-cap requirements before signing.
A Shrinking Market
The ISA market has contracted sharply since its peak around 2019 and 2020. Purdue University, the most prominent university ISA provider through its “Back a Boiler” program, suspended the program and is no longer accepting new applicants.6Purdue University. Back a Boiler ISA Fund Other accredited colleges have followed suit, and several high-profile coding bootcamps have also ended their ISA offerings.
Several forces drove the contraction. CFPB enforcement created legal uncertainty for providers that had structured their products to avoid lending rules. Lawsuits from former students alleging deceptive practices added litigation costs. And the underlying economics were harder than expected: providers carried significant risk, and income verification plus variable payment collection proved administratively expensive.
If you’re evaluating an ISA today, fewer options and less competition make careful comparison shopping more important, not less. Model what you’d pay under both optimistic and pessimistic salary scenarios. Compare that against federal student loans, income-driven repayment plans, and private loans. Pay particular attention to the income floor, the payment cap, the definition of income, and whether the contract contains an acceleration clause.