One of the most popular benefits of federal student loans is the ability to join an Income-Driven Repayment (IDR) plan. With private loans, on the other hand, your payments remain the same regardless of how much you earn.
But while IDR plans have made federal student loans overwhelmingly popular, what happens if you hit your annual or aggregate federal loans borrowing limit? Are there any borrowing options besides federal student loans that offer income-based repayment? And what happens if you want a more flexible repayment option, but don’t want to be paying your loans for 20+ years?
It turns out that the answer is yes. Income Share Agreements (ISAs), like the ones offered at Stride Funding, are alternatives to student loans. With an ISA, you commit a percentage of your income to repayment. If you're wondering whether an income share agreement could be right for you, keep reading our full Stride Funding review to learn more.
Quick Summary
- Payments based on a fixed percentage of your future income
- No monthly payments if you're earning less than $40k annually
- No co-signer or minimum credit score requirement
Stride Funding Details | |
|---|---|
Product Name | Stride Funding |
Min Loan Amount | $5,000 |
Max Loan Amount | $25,000 |
Repayment Period | 2 to 10 years |
Payment Cap | 2x borrowed amount |
Promotions | None |
What Is An Income Share Agreement?
An income share agreement is a funding option where a person agrees to repay a set percentage of their income in the future in exchange for money today. ISAs are a relatively uncommon way to fund an education, but they may make sense for people who are averse to taking out traditional debt.
Pros And Cons Of Income Share Agreements
Pros
- Downside protection: You only pay a percentage of what you earn. If you earn very little, you repay very little. Compared to private loans, this is very helpful.
- Fixed repayment period: Government loans are repaid over 10 years to 25 years (or more in some cases). The ISA is more of a “rip the band-aid” off approach. The repayment period usually ranges from 5 to 7 years.
- Generally a limit on repayment: Most ISAs limit the total amount you repay over the life of the agreement. Once you reach the limit, you’re done repaying.
Cons
- Repayment can eat up a large chunk of your salary: If you exclusively use income share agreements, your repayment amount may eat up 15% or more of your annual salary. That’s a significant amount of money to repay.
- Cannot refinance: Once you take out an income share agreement, you’re basically stuck repaying it as agreed. It's not easy to refinance to a standard private student loan at a lower interest rate.
- May pay more overall: A person who outearns expectations will definitely overpay on an ISA. Even with the limits to repayment, high earners may end up overpaying compared to a standard loan.
- Not easy to do the math: Comparing ISAs to loans is nearly impossible. You don’t know what you’ll earn after graduation, so you’re stuck guessing.
- Do not qualify for Public Service Loan Forgiveness: ISAs are a form of private educational funding. Borrowers are not eligible to have the loan forgiven through federal programs like Public Service Loan Forgiveness (PSLF).
Stride Funding ISA Terms and Benefits
ISAs are generally offered by schools. But Stride Funding is one of the few companies that offer income share arrangements regardless of the school that you attend. Since it is a unique form of financing, it’s important to understand some of the fine print associated with Stride Funding’s ISA. These are a few details to understand:
Eligibility
To qualify for a Stride Funding ISA, you'll need to be a US citizen attending a US school. Also, Stride ISAs are currently only being offered to the following students:
- Graduate
- Post-Baccalaureate
- Undergraduate senior
Finally, you'll need to be enrolled at a 4-year college or university, or an accredited PA school, to qualify for a Stride Funding income share agreement.
Repayment Terms
Stride Funding offers income sharing arrangements that last from 2 to 10 years following graduation. The repayment period starts after a grace period of three months.
Salary Repayment Requirements
The percentage of income you repay depends on the amount you borrow. Each income share agreement is different, so Stride doesn’t provide strict guidelines. The percentage is based on your expected future income following graduation. One example is that a Nurse who “borrows” $10,000 will repay 3% of their income for 5 years.
Higher expected earners (such as computer science engineers) may see lower percentages. People expected to earn lower compensation (teachers, journalists, etc.) may be required to share a higher percentage of income.
Downside Protection
If you’re earning less than $40,000 per year ($3,333.33 per month), you don't have to make any payments whatsoever. That means you keep your money during your lower earning years, but you’ll repay Stride when you earn more.
Funding Limits and Repayment Cap
You can fund up to $25,000 per year of school through Stride Funding. Stride limits your repayment to twice what you fund. That means a person who borrows $30,000 will never repay more than $60,000, no matter how much she earns.
Is Stride Funding Worth It?
If you've exhausted your federal student loan options, an ISA could be a better choice than private student loans. You get the benefit of income-based payments (which private loans can't match) while still having the guarantee that your repayment period won't last any longer than 10 years.
But is the ISA from Stride Funding a better deal than federal student loans? For undergraduate borrowers, probably not. If you're a graduate student, though, it could be worth comparing an ISA to Grad PLUS loans, which have the highest interest rates of all federal loans.
However, if you plan to go into public service (military, government, teaching, non-profit work, etc.) and may later qualify for PSLF, you'll definitely want to stick with federal loans, even if a Grad PLUS loan is your only federal loan option.
Stride Funding Features
Stride Funding Features | |
|---|---|
Min Loan Amount | $5,000 |
Max Loan Amount |
|
Repayment Period | 2 to 10 years |
Eligible Students |
|
Minimum Income Threshold | $40,000 |
Payment Cap | 2x times borrowed amount |
Cosigner | Not Required |
Application Or Origination Fees | None |
In-School Deferment | Yes |
Grace Period | 3 months after graduation |
Promotions | None |
Stride Funding Review
- Terms and Requirements
- Cost and Fees
- Customer Service
- Ease of Use
- Rewards and Perks
Overall
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
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