With most student loans, there may be a short grace period after graduation when payments aren’t required. But, after that, payments will begin, regardless of employment status.
With private student loans, payment amounts are also independent of a student’s income level. And if a borrower begins falling behind on their student loan, their credit will be ruined, further setting back their financial prospects.
ISAs or income share agreements are trying to change all of that. ISAs are not student loans. Instead, they pay a student’s tuition and tie payments to income levels. Some ISAs are offered directly by universities and others by companies such as Edly.
Edly lets accredited investors invest in ISAs, providing an alternative investment and investment diversification. In this article, we’ll get an overview of how ISA investing through Edly works.
- Get paid a percentage of the future income of students
- Receive cash payments on a monthly basis
- Targeted returns of 8-14%, net of fees and expenses
8% - 14%
0.50% - 1% of investment amount
2% - 4% of cashflows
Indirect Expense Fees
Up to 1% of cashflows
Who Is Edly?
Edly is an ISA marketplace. Its founders are Charles Trafton and Christopher Ricciardi. The company was formed in 2019 and is based in Briarcliff Manor, NY. It has raised $3 million through a seed round. Edly has filed to become a registered investment advisor (RIA) in the state of New York.
What Do They Offer?
An ISA is an alternative to student loans. By using an ISA, a student’s tuition is paid for in exchange for a percentage of their future income. Who is funding these ISAs? Private investors and universities fund them. Investors basically take a bet on a student’s future.
Edly investors must be accredited. This means a net worth of $1 million excluding the primary residence or an income of $200,000 for the last two years.
ISAs started to come onto the scene in 2015. At the time, there were only a small number of schools participating. By 2018, the number of participating schools began increasing and by 2020 stood at about 80. Purdue was the first university to offer ISAs. Trafton was involved with Purdue’s ISA program before co-founding Edly.
Across America, student loan debt is outpacing future wage growth. ISAs tie the value of tuition to a student's future earnings power. In short, students don’t pay for tuition until they get a job.
The amount a student has to pay is then tied to their level of income. As the student’s level of income fluctuates, so will their payment. The minimum income level to start repayments is $30,000 - $40,000. Terms are typically 3-5 years.
Investing In ISAs
ISAs provide investors with monthly income. This income is low during the first few years. But as a student nears graduation and moves into employment, monthly income will increase.
It should be noted that ISAs are alternative investments, which are generally considered higher-risk. Additionally, there’s no secondary market to sell or exchange your ISA. Once you invest with Edly, you are basically stuck for the duration of the investment.
Edly does take steps to reduce risks. These include investing in student contracts and hiring a professional collection agency in the event of non-payment.
Two Types of Investments
Edly offers two types of investment products:
EdlyOutcomes I — Principal Protected:
EdlyOutcomes I — High Yield:
Both Edly investments have the following:
Is My Money Safe?
The Principal Protected product is the safer of the two products, however, as it provides asset protection through government bonds.
Are There Any Fees?
Yes, Edly charges a variety of management and expense fees. Here are the details of each:
For principal-protected investments, the fees are as follows:
- 0.5% of the initial investment amount per year for two years, PLUS
- 2% of ISA cashflows, PLUS
- 1% of the Treasury STRIPS cashflows
If not offered on a principal protected basis, the management fees are as follows:
- 1% of the initial investment amount per year for two years, PLUS
- 4% of the ISA cashflows.
Edly will also charge investors all of the out-of-pocket expenses related to the management of the account up to 1% of cash returned to investors. Examples would include fees paid on student payment collection or ISA origination fees.
How Do I Open An Account?
You can visit the Edly website to create an account and begin investing. During the signup process, Edly will need to verify your investor accreditation status. You'll need to submit at least one form of photo ID and will need to substantiate your income or net worth.
Is It Worth It?
If you're an accredited investor with a high investment risk tolerance, Edly can be worth it. It's another method of diversifying your portfolio. Additionally, you’ll be providing students with an alternative to financing their education.
But with the potential for wide income swings over time and the lack of a secondary market, Edly probably won't be ideal for investors who want stability and liquidity. Also, Edly's various fees may give some investors pause and cause them to look for lower-cost alternative investments.
3 to 5 years (target of 4 years)
EdlyOutcomes I — Principal Protected: 8%+
EdlyOutcomes I — High Yield: 14%+
EdlyOutcomes I — Principal Protected: Yes, protected by U.S. government bonds
EdlyOutcomes I — Principal Protected
EdlyOutcomes I — High Yield
Indirect Expense Fees
Up to 1% of cashflows
Monthly, on the 25th day of the month
Focus on Technology, Nursing, Business, and Industrial Vocational
No secondary market
Early redemption may be allowed in some circumstances
Open to accredited investors only
Customer Service Number
Customer Service Email
Mobile App Availability
- Customer Service
- Ease of Use
- Investor Information
Edly enables investors to earn a percentage of the future salaries of top students by investing in Income Share Agreements (ISAs).
- High target yields
- Monthly cash flow
- Relatively short maturity (3-5 years)
- Low liquidity
- Higher fees than many more traditional investments
- Open to accredited investors only
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 on the About Page, or on his personal site RobertFarrington.com.
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.