Funding your education: should you pay your own way or take out an ISA?

With all the press around education ISAs (income share agreements), it’s worth asking if they are the right kind of educational investment to make. After all, the premise is great: you pay nothing up front for your education and only start paying back money after you land a high-paying job. And if you hit hard times and can’t find a job, your payment goes to zero until you’re back on your feet.

The leading innovators of ISAs in North America are coding bootcamps and tech schools. It’s not entirely unusual for coding bootcamps to embrace a new funding model like ISAs. After all, the premise of a coding bootcamp is already a shift from the traditional educational model. And, given the current demand for technical skills in cities like Toronto, Montreal, and Vancouver, innovation in funding options is a promising new frontier.

But as great as ISAs sound – go to school then only pay when you earn – there are multiple things to keep in mind before accepting one. If you’re looking to advance your education, whether through excel courses, Python courses, or a full-time program in web development, it’s worth comparing paying up front versus taking an ISA.

When you take an ISA from a school, there’s a lot to watch for. Read the fine print clearly, specifically looking for information on:

Depending on the school you look at, not every course or program fits into their ISA offerings. For example, General Assembly and HackerYou offer ISAs for their full-time bootcamps only, not their part-time courses. Also bear in mind that many bootcamps in Canada and the United States offering ISAs require a program deposit of several hundred dollars.

There may also be citizenship or residency requirements to qualify for an ISA, so pay attention if you are an international student studying in Canada.

Some ISA programs cover whole courses, meaning the entire cost of a course is covered by an ISA. Other schools may work in dollar amounts, giving you a fixed amount of money upfront to use towards whichever courses you’d like to take. Know which one your school uses (and the price of each course) before agreeing to an ISA.

One of the big draws for ISAs is that you don’t start paying it back until you have a job. However, different schools may have different levels of income that trigger payments. For example, some schools start requiring payments once you earn $20,000 per year while others may not require payment until you’re earning $50,000 per year.

Most ISAs operate on a percentage of income basis, ranging anywhere from 1.5% to nearly 20%. For example, if you have an ISA payment size of 10% of income and you earn $5,000 in a month, you make a $500 payment. However, if your income drops to $4,000 the next month because you changed jobs, your payment drops to $400. This offers flexibility, but the percentage itself never changes once it’s set. Further, it may be different depending on school or specific course, so pay attention to your unique circumstances.

ISAs often have a fixed term during which you are required to make payments, based on a percentage of income, for a certain number of months or years. Make sure you know how long you’re obligated to pay the school back for the ISA.

ISAs are intended to make profit for the school while reducing risk for you, so you will pay more for your course through an ISA than you would have paid upfront. However, that cap varies. As you think about coding bootcamp cost, realize that ISAs could be very expensive in the long run. It could be as low as zero – meaning you only pay back the value you took out – all the way up to 2.5x or more, meaning if you took out $10,000 you would owe $25,000 over a longer period of time.

Since you only start paying after you get a job – and you don’t pay if your income drops below the school’s stated income threshold – you’ll need to report your income to your school each month. Learn what the processes and procedures are for doing this to make sure you are on track and not in violation of your ISA.

Before getting into an ISA, know what risk you take if you don’t follow all the procedures or break the rules set by the school. They could mean losing access to alumni resources, fines, or even, in extreme cases, criminal action.

When you pay your own way, you walk out free and clear after graduation. No reporting your income, no worrying about the school taking privileges away from you. It’s your education and you paid for it.

Paying your own way comes in a couple of forms, but you can combine strategies to maximize your money while minimizing the need to hold a job during school.

A part-time job may help you pay for your living expenses and the course, but it could also limit the types of courses you can take. Working part time, though, could be perfect if you’re just looking at coding for beginners, for example, where the courses are typically shorter and more flexible.

If you’re paying for education, you may be able to claim educational tax credits to get some, if not all, of that money back when you file your taxes. Look at your province’s specific opportunities, which can be found on this page on the Canadian government’s website.

Whether offered by governments, private institutions, charities, or the schools themselves, there are millions of dollars in scholarships available to learn new skills. Check out this resource for scholarships for people from diverse backgrounds and don’t forget to research scholarships at the schools you want to attend. Applying for scholarships can be time consuming, especially because you may need to apply to multiple scholarships to get enough funds for a more expensive course.

If you’re looking to gain a new skill that will provide value to your current employer, they may be willing to fund part or all of your education (and help you make work more flexible to accommodate learning). If they won’t pay for it with their own money, you can potentially still get money from the Canadian government – the government has programs which fund employers to pay for employee professional development.

When it comes to education financing, nothing will be better than paying your own way. If there’s a way to make it happen for you between working, scholarships, or getting employer support, paying for education upfront will cost less. However, ISAs offer flexibility and access to education for people who can’t pay upfront. It may cost more over time, but it also opens the opportunity for continuing education or a career change to many people who otherwise wouldn’t have had it.