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Purdue Experiments With Income-Contingent Student Loans

Posted by timothy on from the now-how-much-would-you-pay? dept.

HughPickens.com writes: Danielle Douglas-Gabriel writes in the Washington Post that Purdue University is partnering with Vemo Education, a Reston-based financial services firm, to create income-share agreements, or ISAs, that its students can tap to pay for tuition, room and board. In return, students would pay a percentage of their earnings after graduation for a set number of years, replenishing the fund for future investments. Purdue president Mitch Daniels calls the contracts a constructive addition to today's government loan programs and perhaps the only option for students and families who have low credit ratings and extra financial need. "From the student's standpoint, ISAs assure a manageable payback amount, never more than the agreed portion of their incomes. Best of all, they shift the risk of career shortcomings from student to investor: If the graduate earns less than expected, it is the investors who are disappointed; if the student decides to go off to find himself in Nepal instead of working, the loss is entirely on the funding providers, who will presumably price that risk accordingly when offering their terms. This is true "debt-free" college."

However some observers worry that students pursuing profitable degrees in engineering or business would get better repayment terms than those studying to become nurses or teachers. "Income share agreements have the potential to create another option for students looking to pay for college while seeking assurances they will not be overwhelmed by future payments," says Robert Kelchen. "However, given the current generosity of federal income-based repayment programs and the likely hesitation of those who expect six-figure salaries to sign away a percentage of their income for years to come, the market for these programs may be somewhat limited."

7 of 230 comments (clear)

  1. Sounds like a good idea. by newcastlejon · · Score: 4, Informative

    This is pretty much what university students in the UK have had since the early 2000's, but without offering different terms for different fields. Instead, some career paths, e.g. nursing, are incentivised with bursaries.

    --
    If God forks the Universe every time you roll a die, he'd better have a damned good memory.
    1. Re:Sounds like a good idea. by Chrisq · · Score: 3, Informative

      This is pretty much what university students in the UK have had since the early 2000's, but without offering different terms for different fields. Instead, some career paths, e.g. nursing, are incentivised with bursaries.

      It comes at a cost though. The UK government believes that around 45% of university graduates will not earn enough to repay their student loans. Of course almost all will pay some, and a lot will pay most of it - but there is an outstanding bill. In the UK the government (i.e. taxpayers) underwrites student loans and will pick this up ,,, I'm not sure what will happen in the USA - or if they will just charge a lot more to those who earn more to make it cost neural.

  2. Nurses or teachers? by 93+Escort+Wagon · · Score: 3, Informative

    My wife is a nurse (RN). If she chose to work full time, she'd make a very nice income.

    Nurses are well-compensated - in the Puget Sound region, anyway...

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    #DeleteChrome
    1. Re:Nurses or teachers? by Anonymous Coward · · Score: 3, Informative

      why should one want/need a masters to tech middle school?

      Because almost all teacher's unions have negotiated the salary based on education and seniority. Whether or not the person is a good teacher, a master's or PhD degree (usually paid for by the school district) means a big bump in salary.

  3. Re:Punishing people who get degrees we need the mo by _Sharp'r_ · · Score: 3, Informative

    One point of Income Share Agreements (ISA) is that if you're pursuing a STEM or other high-paying degree, you're more likely to make more money overall, so they'll charge you a lower percentage than someone with a less lucrative field. Don't be an idiot and agree to pay back a STEM degree using the same percentage as a sociology major, for example. The anonymous "observers" in the summary are whining about that detail.

    One of the positive sides is if the financial services company is going to make money, the prices for an ISA becomes a good proxy for letting students know which potential majors are likely to be more valuable to society and thus earn them more income over the course of the payback period.

    So doctors and engineers, yes, womyn's studies, not so much...

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    The party of stupid and the party of evil get together and do something both stupid and evil, then call it bipartisan.
  4. Re:University Fees by will_die · · Score: 2, Informative

    Those schools would be equivalent to community colleges in the USA, and in most of those countries you still have to pay a fee for each semester.
    If you check the prices of your local community college you will find that price wise they are about equivalent to what is being offered in other countries. The extra amount could easily be paid off by working a job or do as I did and work a full time job which allowed me time for taking classes.

  5. Re:Punishing people who get degrees we need the mo by fche · · Score: 3, Informative

    "non-profit" does not mean charity or unbelievably high quality or even moral fibre. It just means a different financial structure.