+ How are ISA payments calculated?

Payments are calculated by multiplying your percentage income by your monthly income. For example, let’s say a student has an ISA with an income share of 2.7 percent, and this student gets a job earning $48,000 per year. A student’s payments would be calculated using these steps:

• Calculate monthly income by dividing annual income by 12: $48,000/12 = $4,000
• Calculate monthly payment by multiplying the monthly income times the agreed upon income share: $4,000 x 2.7 percent = $108/month.

As the student’s income changes, payments will always be recalculated using the same formula.

+ How is my income determined for the purposes of my payment obligation?

Your income-determined payments are calculated based on your individual earned income, which is defined as the sum of:

• Wages, salaries, tips, commissions and other employee compensation you earn from all employers in the taxable year. (For illustrative purposes, if you are using the IRS Form 1040, this value appears on Line 1.)
  

• the amount of your net earnings from self-employment for the taxable year. The term "net earnings from self-employment" means the gross income you derive from any trade or business you carry out, less the expenses attributable to such trade or business, plus your distributive share (whether or not distributed), from any trade or business carried on by any partnership of which you are a member. (For illustrative purposes, if you are using the IRS 1040 form, this would include portions of the amounts included on Schedule 1, lines 12, 17, and 18. Specifically, it would equal the total of the amount on line 31 of any Schedule C with a "Yes" on Line G, the amount on line 34 of any Schedule F with a "Yes" on Line E, and the sum of columns (i), (j), and (k) of line 29a of any Schedule E.)

Unemployment benefits you receive are not considered part of the your individual earned income. It also excludes income earned by a spouse.

+ How does the lower income cut-off work? Is it calculated based on my monthly or annual income?

During your payment window, if your monthly income is below the lower income cut-off, adjusted each year for inflation, the payment obligation for that month is calculated as $0. However, you still receive credit for that month toward your payment window even though your payment obligation is zero.

+ Is there a grace period for BFF’s ISAs?

Yes, there is a six-month period, or Transition Period as we call it, before your payment window begins. However, if you are not earning above the threshold after the transition period ends, your payment window will still start but your monthly payments will still be calculated as zero until you begin earning above the lower income cut-off.

Is there a forbearance option if my monthly payment becomes unaffordable?

Yes. You can take up to 12 months of forbearance, or Payment Relief Pauses as we call it, (continuously or separately) during your payment term. During a payment relief pause, your payment obligation will be suspended. You won’t receive credit toward your payment window for any months where you are in forbearance.

+ Do I have to submit my tax return at the end of the year?

You will be required to submit a copy of your tax return each year and, additionally, sign a form allowing us to receive a copy of your tax transcripts from the Internal Revenue Service (IRS). This provides us with an independent source of verification for the income you’ve earned in the calendar year.

We may also require a reconciliation at the end of the year if the payments you made were higher or lower than the amount you would owe for the year using your annual income. If your payments during the year were higher than what you would owe based on your annual income, we will credit those overpayments toward future payments. If your payments were lower than what you would owe based on your annual income, the difference will be added to your monthly payment obligation in the following calendar year.

If you had periods of payment relief pauses or other months that weren’t covered by your payment window, we will subtract that income from the annual income on your tax return, and in doing so we will assume that your income was earned evenly throughout the year. If you believe this does not accurately represent how your income was earned, you can appeal this calculation by providing documentation showing your income level during the months not covered by your payment window.

+ Can I complete my ISA early?

You can end your ISA at any time by paying the Early Completion Amount listed in your ISA minus any payments you have already made.

+ If I earn a high income, do I risk paying more than other students or more than I would for a traditional financial product?

On contracts issued after July 2021, BFF wants to make sure you would not have been better off taking out a loan with the same funding amount at a 7.5% interest rate instead of your ISA. To make sure of this, BFF is constantly calculating how far along you'd be in repayment if you had taken out a traditional loan with these terms instead of your ISA (and the loan had the same funding amount, a deferment and grace/transition period identical to your ISA, and where the payments on the loan match any payments you make on the ISA). If, after your latest monthly payment, the calculation shows you would have paid off the loan in full but you still have time on your ISA, your obligation is immediately done under the Early Completion clause. However, if your after-school earnings are lower, you could pay less than these amounts or even nothing.

+ Is it possible to default on this obligation? What are the risks?

Yes. If you fail to communicate your annual income or experience difficulty making payments, then your account may become delinquent and eventually go into default. This can be avoided by maintaining communication and complying with the terms of your ISA contract.

+ What are the tax implications of an ISA?

The federal, state and local income tax consequences of ISAs are not yet certain. Upon the maturity or termination of an ISA, if the aggregate amount of funding credited to your account is greater than the sum of payments you made during the payment window, you may need to recognize the difference as ordinary income. We recommend you consult with a trusted tax advisor about the consequences of entering an into an ISA contract.

+ What happens if I don’t graduate on time or at all?

BFF's ISAs enter a transition period upon graduation, withdrawal, or when a student stops enrollment (aside from non-standard semesters such as the summer). Even if you don’t finish your degree or program, you are responsible for meeting the terms of your ISA contract.