Kristen is the Founder and CEO of Catch a personal benefits platform that helps independents and freelancers manage tax withholding, retirement investment, and health insurance.

Loans: It’s only forever, not long at all.

For those of you who are perhaps too young to recognize a great David Bowie quote when you see one, take my word for it: that title is brilliant.

Most of us have taken out a loan at some point in our lives. Maybe for something small, where a month’s balances on our credit card can get us the dream vacation we’ve always wanted. Maybe for something practical like a car, where a few years of diligent repayment can give us an asset we’ll have for a long time. Maybe for something huge like a house that we’ll be paying for until 2050. I think that might be literally forever. 😱

But today, I want to talk about another kind of loan: one that defies conventional market processes and has therefore been incredibly difficult for consumers to use in a healthy and effective way. They’re loans that young people take without thinking, and the end result can be endless repayment, trashed credit, and an inability to grow important assets (like buying a home and saving for retirement). You know what’s coming.

Student loans.

For now, though, I’m not actually going to spend most of this piece talking about student loans for traditional four-year universities. I have a LOT of thoughts about them, especially about the danger of the government guaranteeing credit for failing institutions that have given no indication of their ability to help their students succeed.

Instead, I want to talk about education loans more generally, especially compared to other financial products that are being developed to finance alternative learning programs. Let’s use a coding bootcamp, like an immersive software engineering course at General Assembly, as the example so that we can be specific. Generally, though, you can take a lot of these principles and apply them to other types of non-traditional education as well: trade schools, vocational programs, travel internships, etc.

There are usually about half a dozen ways you can pay for your program. None of them are inherently “good” or “bad,” but instead offer options that can help you optimize for what’s most important to you. Let’s take a look at what the payment options are, and then go through some questions you can ask yourself to figure out which financing option makes the most sense.

Full Tuition Up Front

The most obvious way to pay for a program is to pay the total cost up front before classes begin.

The good: You often get a discount on the list price if you pay up front, so your total cost will probably be the lowest if you can pay in advance. Also, once you start the program, you don’t have to think about paying for it ever again.

The not-as-good: Not everyone has $10k (or more!) sitting in a bank account. You might have to save for a really long time to get that money pulled together, so starting the program soon if you want to pay up front might mean full up front payment isn’t an option for you.

Installments

If you are doing a part-time program (or a full-time program where you’re still going to be earning money) and will be earning money while you’re in classes, you may be able to pull together the cash. You can pay the full program tuition in chunks over a few months.

The good: You won’t have to pay any interest or unnecessary fees if you’re able to pay the full cost before you finish the program. The total amount you pay won’t exceed the cost, and you won’t take on any debt. If you prefer not to pay all at once, this is a great choice.

The not-as-good: If you’re in a full-time program, it’s hard to earn while you’re learning. Meaning you may not be able to get the full cost together in a few months. You also may not be earning enough to cover the full cost even if you are working.

Loans

A classic loan may be offered where you can borrow money from a bank or financial partner that you’ll repay with interest after you finish the program.

The good: If you don’t have money in the bank, a loan can give you the opportunity to jumpstart your education. Especially for a program that will significantly increase your ability to earn income, taking out a loan to get that extra income is a great financial decision.

The not-as-good: Two reasons a loan may not be the best decision — if your credit isn’t very good, the rate you’re offered on a loan may be high, which means you’ll end up paying a lot for the program you want to do. The second reason is that if you take out a loan and aren’t able to get a job that pays enough, you’re still on the hook for repayment. If the job market is uncertain or your confidence of being able to find a high paying job isn’t very high, a loan can be a bigger risk.

Income Share Agreements (ISAs)

One of the newest tools that has become available to help pay for bootcamps is an income share agreement. Under an ISA, no money is owed up front, and you pay a percentage of your income if and only if you make above a certain amount.

The good: You don’t have to pay up front, and you aren’t at risk of having to repay thousands of dollars if you aren’t able to find a high paying job after you finish the program. Your incentives (getting a good job) are aligned with the program who wants you to earn more so they are paid more.

The not-so-good: You’ll probably end up paying the most total for the program under an ISA. Some programs, like General Assembly, will cap your repayment at 1.5x of the original price of the program, but that may mean you end up paying quite a bit more than what you would have paid if you pay up front. Some ISAs don’t cap repayment terms, so make sure you understand the specific plan. If you have good credit and you’re really confident you will get a high paying job after the program, you’ll probably end up paying less with a traditional loan.

So, where do you start? What’s best for you is highly dependent on the context of who you are, how much money you have, and what you’re trying to accomplish. With that, let’s get to know you better. Remember: no judgement here. This is about making the right call for your own future.

1. Do you think you might be eligible for support from one of the following:

• GI Bill (for Veterans)
• Your Employer (through tuition reimbursement)
• Social Impact Charities (through grants and discounts to underrepresented minorities in tech and those with low income)
• None of these

2. How much money do you have (currently) to spend on the program?

• I have about $10000 (1 point)
• I have about $5000 (2 points)
• I have about $1000 (4 points)
• I don’t have money to spend on the program (8 points)

3. How quickly do you want to start the program?

• I could wait 1–2 years (1 point)
• I’d like to start in the next 6–12 months (2 points)
• I’d like to start in the next 3–6 months (4 points)
• I need to start now (8 points)

4. How confident that you’ll get a high paying job after you finish the program?

• I’m extremely confident; the offer is basically waiting for me (1 point)
• I’m confident I can find a good job with these new skills (2 points)
• I hope I’ll be able to earn more money once I’ve done this program (4 points)
• I’m not sure about the job market or if I’ll be able to be hired (8 points)

5. How important is it to you to pay as little as possible for this program? (total costs)

• It means a lot to me to minimize interest and fee payments (1 point)
• It’s somewhat important; the less I pay in the long run, the better (2 points)
• It’s not that important, but I’d like to be a bit cautious in how I take on debt (4 points)
• It’s not important at all; I need this program (8 points)

6. How’s your credit?

• 😖 below 650 (8 points)
• 😟 650–700 (4 points)
• 😐 700–750 (2 points)
• 🙂 750 and above (1 point)

Now, if you answered yes to any of the options listed on question #1, your first stop should be figure out how to qualify for the advantages that come along with being a veteran, social impact grant recipient, or employee with tuition reimbursement benefits to use.

For questions #2–6, add up the points from your answers.

5–9 points: Paying up front or through installments is your best option. You’ll pay the least amount total. If you have money in the bank or you can wait a bit and save up, full payment without debt is a great option. By the way, you can automate your savings and set aside a little bit of each paycheck by using a tool like Catch so it’s easier to hit your goal.

10–19 points: If you’ve got some cash or good credit, paying through installments or with a low-cost loan is your best option. You can decide how much urgency there is to start the program now (ie if you’re out of a job now you may not want to wait and a loan can be a great choice), but if you’ve got time, you can lower your overall costs by waiting and saving some more cash for the program.

20–27 points: A loan is probably your best option. You should be able to get reasonable rates and repayment terms and quickly get into the program without having to have a lot of cash on hand to get started.

28+ points: You are a great candidate for an ISA. You can get started quickly and minimize the risk of not being able to find a high paying job on the other side of the program. If you don’t have great credit, an ISA can be a good way to avoid paying way too much in interest on a traditional loan.

Taking on student loans (or debt in any form) is a major decision. The good news, is that there are great programs out there that can actually help you build a better, higher paying career. If you’re taking out a loan in the context of earning more money, and you’ve got good reason to believe you’ll be able to pay back, loans are a powerful way to get ahead. ISAs are as well. Even if you pay slightly more in the long run, for those without any capital to get started, ISAs are great way to open the door and can lower the downside risk.

By making smart decisions for your own financial picture, you can ensure you’re not saddled with bad debt for the next few decades. Because unfortunately, David Bowie, forever is a very long time (when you’re in debt).

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