There is currently $1.5 trillion of aggregate student loan debt in the United States. Since the 1980's, tuition rates have doubled causing millennials to delay important life milestones in order to pay back their debts. Even with those delays, around 40% of borrowers are expected to default on their student loans by 2023. The average student loan debt is around $37,000 or the cost of a 2 Series BMW.
Part of the issue behind the student loan repayment problem is the interest rates. Currently, interest rates for Federal student loans range from 4.53% to 7.08% according to Nerd Wallet. 4.53% of interest on $37,000 is about $1,676. Debtors who have an interest rate at 7.08% will end up tacking on about $2,619 minus any payments they've made for the year.
The folks at Blair decided to take action and democratize a new tool that we've talked about in previous Founder's Choice articles: Income Share Agreements or ISAs. For those unfamiliar with ISAs, here is a brief explanation offered by Blair:
An Income Share Agreement (ISA) is a contractual agreement between a student and our fund in which the student receives education funding in exchange for an agreed upon percentage of post-graduation income over a pre-defined number of years. For example, you receive $10,000 from us to pay for tuition, books and rent. In return, once you graduate and get a job, you pay us 3.15% of your income for 8 years.
The difference between ISAs and regular loans is that ISAs are much more flexible when it comes to your repayment terms. The 3.15% mentioned in the above quote will also depend on your major and expected salary after graduation. Your monthly payment is based on your salary after graduation. For instance, if you are able to secure a $55,000 a year job, you would pay Blair $1,732.50 (3.15%) a year for 8 years. However, Blair has instituted a repayment cap that protects you from overpaying. If you make $100,000 one year, Blair limits you from paying more than 2x-2.5x of the original loan. On the other hand, if your income is below $25,000, you won't owe Blair any money. This is called a salary floor.
Like current federal loan repayment programs, Blair also offers a grace period so, depending on your ISA, you may not owe anything for 1-6 months. This is great for those looking to save a bit of money before ponying up a percentage of their salary.
Currently, Blair offers loans as little as $1,000 and as large as $50,000. Those looking to go to grad school after obtaining their undergraduate degree can take advantage of deferment.
What I love about Blair is that they're looking to come full-circle. Their goal is to make it easier for people to afford college but it's also in their best interest to see you get a great job after graduating. After all, the more money you make the more money they make. According to their website, the company is currently creating tools and resources to help their consumers get higher-paying jobs out of college.
The closest thing to ISAs offered by the Federal government are currently their income-driven repayment plans. These plans essentially cap your monthly payments based on a percentage of your discretionary income and eventually forgive the loans you haven't repaid.
The student loan issue has thankfully become a central issue addressed in the 2020 presidential campaign. However, whether action will be taken remains to be seen. It seems possible that ISAs become something offered by the federal government. After all, ISAs are still just another form of loan repayment; they're just packaged different.
Taking advantage seems like a great idea if you meet the eligibility requirements:
- You need to be enrolling in a post-secondary education institution
- Be a US Citizen or permanent resident
- At least 18 years of age at time of contract signing
No co-signor or credit score is required.
Blair is currently backed by Y Combinator after their s2019 round.