Income share agreements: what you actually signed, and the defence nobody explains

An income share agreement replaces tuition with a share of what you later earn: a set percentage of income, for a fixed number of monthly payments, only in months you earn above a floor, and never more than a stated cap. That structure is genuinely different from a loan. Whether it is one, legally, is a different question with a different answer.

The definition does not care what the document is called

The Truth in Lending Act defines credit at 15 U.S.C. § 1602(f) as "the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment". An ISA does exactly that: the school provides a course now, you incur an obligation to pay for it, and payment is deferred. Nothing in the definition turns on whether the amount is fixed, whether it is called interest, or whether the label on the page says "not a loan".

The CFPB has said so twice. Its September 2021 order against Better Future Forward concluded that an ISA is an extension of credit under both the Consumer Financial Protection Act and TILA. Its April 2024 order against the coding bootcamp BloomTech went further: the school had falsely claimed its agreements "were not loans, did not create debt, did not carry a finance charge, and were 'risk free'", when they were loans carrying an average finance charge of $4,000.

Five numbers decide what an ISA costs, and it is not the percentage

BloomTech's terms are a useful worked example because a regulator published them. A student earning more than $50,000 in a related field paid 17% of pre-tax income monthly until they had made 24 payments or reached a $30,000 cap. On a $60,000 salary that is $850 a month for two years. The percentage looks modest; twenty-four of them do not.

Once it is credit, an APR has to exist on paper

That is the practical consequence of the classification. Closed-end disclosures under 12 CFR § 1026.18 include the creditor, the amount financed, the finance charge, the annual percentage rate, the payment schedule and the total of payments. A school selling "no interest, no debt" has to produce a document stating the dollar cost of the credit and its cost as a yearly rate. The CFPB's finding against BloomTech was precisely that it did not.

Two assumed escape routes do not work. TILA exempts credit transactions above a dollar threshold under 15 U.S.C. § 1603(3), but that exemption expressly does not reach private education loans, so size is no shelter. And a contingent payment schedule makes disclosure harder to compute, not optional.

Where the school is a covered educational institution, subpart F of Regulation Z adds a layer: credit for postsecondary educational expenses is a private education loan even where the school is the lender, and 12 CFR § 1026.48 then gives 30 calendar days to accept the terms and a right to cancel until midnight of the third business day after the final disclosures arrive. Whether a bootcamp meets that definition is genuinely contested — which is itself worth asking in writing.

The Holder Rule: you never owe a stranger more than you owed the school

This is the least-explained and most useful part of the subject. The FTC's Preservation of Consumers' Claims and Defenses rule, 16 CFR part 433, requires a seller who takes a consumer credit contract to include this notice in bold ten-point type: "ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

A school is a seller of services within § 433.1, and an ISA financing its own tuition is a consumer credit contract, so the notice belongs in the agreement. It cuts off the ordinary rule that an assignee takes a contract clean: if the school lied about placement rates or shut down mid-programme, those claims travel with the paper. The fund that bought your ISA stands in the school's shoes.

That matters because selling the paper is the business model. The CFPB found BloomTech was selling many agreements to investors and so "often got paid long before a student finished the program and started earning a salary" — which is also why the claim that the school profits only when you do was itself held deceptive.

Acceleration is the clause that ends the "risk-free" claim

An ISA is contingent while payments are being made. Default converts it into an ordinary debt for a fixed sum. The CFPB put BloomTech's version plainly: the loans "carry substantial risk, as a single missed payment triggers a default and the remainder of the $30,000 'cap' becomes due immediately". The Sollers agreements the FTC challenged carried a lump sum of roughly $45,000 on non-compliance.

Read against that, the cap is not a protection. It is the size of the liability that crystallises the moment you stop paying, and it does not shrink because you never earned what the school forecast.

Deferment, and the paperwork that keeps it

Below the income floor nothing is owed that month, but the relief is rarely automatic. Most agreements require periodic income certification and treat a failure to certify as a deemed qualifying month, or as a default in its own right. The failure mode is administrative rather than financial: people who owed nothing end up in default because a form went unanswered.

• Whether the floor is gross or net, annualised or monthly, and whether unrelated work counts.
• What a deferred month does to the payment count — pauses it, or credits it as satisfied.
• The certification cadence, and what happens if you miss one.

Converting an ISA into a number you can compare

An ISA compares to a loan on total cost, not on the percentage. Build three salary scenarios — the school's figure, a median for the role in your city, and a third below that — and for each work out the monthly payment, the qualifying months and the total. Hold it against the tuition. The gap is the finance charge, whatever the agreement calls it.

One asymmetry is worth naming. Because the floor binds the bottom outcome and the cap the top, an ISA is cheapest for the graduate who earns least and dearest for the one who does best. It is insurance against a bad outcome, and like all insurance it is priced.

What is stable here, and what depends on enforcement

Be honest about what you can rely on. Federal enforcement posture toward ISAs has swung sharply and may swing again; the orders above are findings against particular firms, not statutes, and nobody should plan on the CFPB bringing the next one. The underlying law does not move. TILA's definition of credit is a statute, and the Holder Rule notice, once in your contract, is a term you can raise in any collection action against anyone. States are moving independently: California's Student Loan Servicing Act regulations, effective January 2024, classify ISAs as student loans.

The sentence to hold on to

An income share agreement is a financing product for a course, and every rule about financing a course applies to it whatever the marketing page said. That cuts both ways. A school owes you numbers it would rather not print, and a defrauded student is not obliged to keep paying a fund that bought the paper. The obligation is also real, and hardens into a fixed debt the day a payment is missed.

So read it as a credit agreement rather than an alignment of interests. Three clauses decide your outcome: the payment count, the acceleration trigger and the certification requirement. Add the refund terms in the enrolment paperwork and whether the school can hold your transcript over the balance, and that is the deal. Employers run the same structure as training cost clawbacks.