What is an income share agreement (ISA)? Why the CFPB treats ISAs as loans

What is an income share agreement?

An income share agreement pays for a student's education up front. In return, the student agrees that once their income is above a set threshold, they will pay a percentage of it until either a payment cap is reached or a period of years runs out. That is how the CFPB described the ISAs in its 2021 order against Better Future Forward (BFF). In months when the student earns less than the threshold, the payment is zero.

What the funder gets back depends on what the student earns, up to the cap, not on a fixed balance.

Is an income share agreement a loan?

The CFPB has found that it can be. In the BFF consent order of 7 September 2021, the Bureau found that:

• The ISAs were credit under the Consumer Financial Protection Act, because they gave consumers the right to defer payment of a debt or incur debt and defer its payment (12 U.S.C. 5481(7)).
• They were credit under Regulation Z for the same reason (12 CFR 1026.2(a)(14)).
• The funds that held them were creditors, because they originated more than 25 ISAs in the past calendar year that were subject to a finance charge or payable by written agreement in more than four installments (12 CFR 1026.2(a)(17)).
• They were private education loans, because they were extended to a consumer expressly for postsecondary educational expenses (12 CFR 1026.46(b)(5)).
• BFF's statement that its ISAs were "NOT A LOAN" was deceptive.

The order said the payment cap's growth component added money to the amount funded in exactly the same way interest adds to a traditional loan's principal.

What follows if an ISA is a private education loan?

• Disclosures. The lender must give Regulation Z's private education loan disclosures. BFF had left out the statement that a consumer who files for bankruptcy may still have to repay the loan (12 CFR 1026.47).
• No prepayment penalty. TILA bars a private educational lender from imposing a fee or penalty for early repayment of a private education loan (15 U.S.C. 1650(e)). BFF's payment-cap design did that, so the order required it to recalculate caps on certain ISAs.

Has the CFPB acted against a training provider's ISAs?

Yes. In April 2024 the CFPB issued an order against BloomTech, a provider of six- to nine-month programs, and Austen Allred. The Bureau's summary says students agreed to pay a percentage of income from a qualifying job to fund about $20,000 in tuition. It found false statements that the ISAs were "not loans" and carried no finance charge, a failure to disclose key loan cost terms under TILA and Regulation Z, and a Holder Rule violation. BloomTech was permanently barred from consumer lending.

How is an ISA different from a tuition payment plan?

A tuition payment plan splits a known price into scheduled payments. Whether a given plan is credit under Regulation Z turns on the same tests: a finance charge, or more than four installments by written agreement, for a business that regularly extends credit (12 CFR 1026.2(a)(17)). Regulation Z's private education loan definition excludes credit from the school itself when the term is 90 days or less, or when no interest applies and the term is one year or less, even with more than four installments (12 CFR 1026.46(b)(5)(iv)). A longer plan, or one that charges interest, needs its own analysis. See Is a 0% plan a loan? and the Truth in Lending Act.

General information, not legal advice. State lending and licensing laws can also apply to ISAs and to school-run plans.