Should I accept funds for a percentage of my future income from Upstart?

[garch]

For anyone who isn't familiar with Upstart, see here: https://www.upstart.com/incomeshare

I'm just about to graduate from university, fortunately enough with a job offer slightly under 6 figures. I have the opportunity to borrow $18.5k from Upstart in exchange for 1.86 percent of my income over the next 10 years. This means if I earn $100k each year for the next 10 years, this funding is essentially a 0-interest loan without the obligations of a traditional loan. The agreement is not a loan, but a promise to pay a certain percentage of my income. As such, and as indicated in the contract, the funding I receive from Upstart will not be treated as income to me and will not be reported to any credit agency. Only in the event that I breach my agreement will Upstart report the money to the IRS as income to me. All that said, is it worth it to take the funds to further my education? I would use the funds to pay for a graduate degree (Georgia Tech now offers an online masters for $7k), or I would use the funds to take courses while I work my full-time job. My ultimate goal is to attend graduate school and then work as a leader in my field of interest. I admit that I am not in desperate need of the funds. However, they would provide a comfortable cushion for my transition and I believe the terms of the contract are hard to forgo even if I do not need the funds. Further, mentorship from highly successful individuals who are literally invested in my career is also offered with the funding, which is my primary interest. I'm concerned I may be overlooking something, so any advice is appreciated. Thanks!

[marty998]

Interesting. I suppose the investors need a decent rate of return so they are assuming you are going to make much more than $100k per year later on.

Surely you would have to verify your income each year? How would that be done? Through tax returns perhaps?

[Roland of Gilead]

I do like the concept...is it legal and enforceable? 

I might have been willing to invest a few thousand for college costs if I could get 2% of Mark Zuckerberg's first 10 years of income.

[Freedom2016]

I gotta say, I wouldn't like this arrangement AT ALL.

If you are the least bit optimistic about your earning power over the next 10 years, you could wind up paying a lot of interest on a loan that, by your own admission, you don't need very much.

In fact, this arrangement sounds face-punch-worthy to me.

[Vilgan]

Interesting approach. Be interesting to see how the contract holds up in court when someone tries to avoid their responsibility.

With the pay nothing but you add a year for when below the threshold amount, this seems very likely to be worse than a loan for many people. I'd also expect the "get money now, delay paying into the future" approach will also appeal to a lot of people.

Hrmm, to actually answer the OP question: those seem like insane terms to sign up for willingly if you can avoid it. After 5 years I'm already making double what I made right out of college and will likely increase another 30% in the next 3-4 years. Mentorship is cool and all, but there are cheaper ways to pay for it.

[iamlindoro]

Personally, I would not.  I would graduate, get hired, and then re-evaluate.  With a full time job and mustachian behavior, it's probable you can pay for your grad degree as you go, with no risk of having to overpay over the next 10 years.  It's also possible that your desires and priorities will change as you step out into the world.

[MarciaB]

I am deeply uncomfortable with the strings/ties/hooks these folks would have into you. And 10 years is a very long time. I would turn and RUN from this as fast as I could. Don't obligate yourself to anything or anyone unless you are seriously compelled to do so (which it sounds like you're not in this case). RUN!!

[garch]

Interesting. I suppose the investors need a decent rate of return so they are assuming you are going to make much more than $100k per year later on.

Surely you would have to verify your income each year? How would that be done? Through tax returns perhaps?

Yep. "Line 22 of your Internal Revenue Service Form 1040 (or Line 4 of Form 1040EZ)." They request limited power of attorney to request a copy of my tax return in the contract agreement.

[garch]

I do like the concept...is it legal and enforceable? 

I might have been willing to invest a few thousand for college costs if I could get 2% of Mark Zuckerberg's first 10 years of income.

In the contract there is a binding arbitration agreement which I believe is where most of their power lies. However, after reading it appears I can reject this agreement and have right to trail in court for any claims or disputes with Upstart.

[Roland of Gilead]

I do like the concept...is it legal and enforceable? 

I might have been willing to invest a few thousand for college costs if I could get 2% of Mark Zuckerberg's first 10 years of income.

In the contract there is a binding arbitration agreement which I believe is where most of their power lies. However, after reading it appears I can reject this agreement and have right to trail in court for any claims or disputes with Upstart.

At which point you would likely lose and then also have to pay court costs and legal fees.

[matchewed]

You're going to be making just under six figures and want to take out 7k-18.5k in a loan for further education...

Regardless of Upstart or any legality/taxation or consumer protection issues they may or may not have I think you need to get your priorities straight. You can afford to pay that amount out of pocket without having to do any hoop jumping.

[garch]

You're going to be making just under six figures and want to take out 7k-18.5k in a loan for further education...

Regardless of Upstart or any legality/taxation or consumer protection issues they may or may not have I think you need to get your priorities straight. You can afford to pay that amount out of pocket without having to do any hoop jumping.

Well said. I understand your sentiment. My reasoning was that I will match as much as possible through my employer's 401K when I have the chance. I will then put additional income in an index fund (possibly a good portion of the Upstart income). I will also have a dependent to take care of. The main appeal however, as I mentioned, was the mentorship component. It would provide me with connections to places where I want to bring my career and may not have otherwise. For example, it's in my backers best interest to ensure I make more money, so they have, in effect, offered support and a network to do so. I've been communicating with some of the backers. I figure it could bring me to where I want to be in my career. Some of the backers are executives at big places like Google etc., hedge funds, entrepreneurs, and serial investors. Interested in your thoughts on the above.

[Vilgan]

There are lots of ways to get exposure to mentorship for people like that already if you are thinking about being an entrepreneur. Startup accelerators, meetups, etc. Why sign away thousands of dollars for what can be had a lot cheaper? If you are just going to work your way up the ladder in a traditional career, how relevant will their advice be anyway?

[matchewed]

You're going to be making just under six figures and want to take out 7k-18.5k in a loan for further education...

Regardless of Upstart or any legality/taxation or consumer protection issues they may or may not have I think you need to get your priorities straight. You can afford to pay that amount out of pocket without having to do any hoop jumping.

Well said. I understand your sentiment. My reasoning was that I will match as much as possible through my employer's 401K when I have the chance. I will then put additional income in an index fund (possibly a good portion of the Upstart income). I will also have a dependent to take care of. The main appeal however, as I mentioned, was the mentorship component. It would provide me with connections to places where I want to bring my career and may not have otherwise. For example, it's in my backers best interest to ensure I make more money, so they have, in effect, offered support and a network to do so. I've been communicating with some of the backers. I figure it could bring me to where I want to be in my career. Some of the backers are executives at big places like Google etc., hedge funds, entrepreneurs, and serial investors. Interested in your thoughts on the above.

So what you're saying is you really want to pay for networking? I stand by my point about priorities. How about keep up with the networking without taking out loans or income forwarding or whatever term they want to call it?

I think you will bring you to where you want to be in your career. This company is just going to see you as a source of revenue. There may be individuals in it who are interested in entrepreneurs and want to have an in on new ideas but it is still a business in the end. Keep that in mind when you consider whether to take out a loan. Focus on skills and relationships to further your career, not what services you use. This is equivalent to buying a BMW to make an impression. It's a talking point. I'm sure if you work hard enough your work can be the talking point.

[sol]

These schemes, like all insurance plans, only make sense if you know something the insuring agency doesn't.

If you intend to work only three years and then retire to volunteer in Africa, it might make sense, just like a life insurance plan might make sense if you have a family history of cancerous death by 40.

But if you intend to work hard and succeed in life, then this is a terrible deal.  Your income should rise significantly in the first ten years after graduation if you are talented and motivated.  I would only take a deal like this if you know something about your future that they don't, like that you're secretly a drug addicted video gamer who is going to be a total fuckup in life.