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Purdue Experiments With Income-Contingent Student Loans
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."
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."
Want to pursue a STEM or other high-paying degree? No problem, but you have to pay a lot more for your degree.
With investment in other asset classes being unproductive, Purdue turns a portion of its foundation money into a bank to loan to its own customers. It's like the car makers' financing arms, just more speculative contracts.
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.
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...
#DeleteChrome
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...
The party of stupid and the party of evil get together and do something both stupid and evil, then call it bipartisan.
You need to read up on this. There is no requirement that you have to work.
If you don't work then the investor loose on you. You have no requirement that you have to work or what you have to earn. If you want to get your degree and then go flip burgers for your entire career you will end up paying the investors nothing.
Someone has to pay for the Liberal Arts majors to hike through Nepal.
Really, what this is going to do is encourage people to get degrees with no marketable value, then wait out the repayment period. Sounds perfect for the "but I'm entitled to a free degree" crowd. Like everything else that is free, this is going to get real expensive, real quick,
Meanwhile, other countries offer free (as in beer) University / College tuition to all students who qualify academically. Maybe if they didn't piss so much money up against the walls of their sporting facilities - and did their job of imparting knowledge to future engineers, scientists, etc, and not service as a training ground for the professional sporting organizations, they might have more money for their academic function.
As opposed to someone getting something for nothing...? You are more than welcome to not agree to the repayment terms and not get the "free" education in return.
You can hardly take a single step in here without someone making some baseless comment about indentured servitude or robber barons. How about you get some proper education and discover the real meaning of those terms rather than using them as the basis of some pathetic comment, eh?
Private schools want profit first and everything else, like actual education, third.
Nope, what you described are for-profit schools. There are plenty of non-profit private schools that provide a great education and value their standards highly.
Two thirds of college students graduate with no debt whatsoever. Only about 11% have debt larger than $36000 (the average cost of a new car).
If you choose to go into debt under these conditions by choosing to take out loans to get an overpriced degree that doesn't lead to a good career, it's your own fault; it's clearly not necessary for succeeding in life.
I call BS. This nothing more than owing the Company Store.
Listen, our society, if it weren't for greed, should understand that
an education S/B part of the infrastructure - some states actually
have it in their State's Constitution (but it's rarely honoured).
Some other European countries are starting to see this fact, and
provide for their people accordingly. This is one of the reasons
India is killing the U.S. in STEM - just ask any one of them!
CAP === 'fortify'
"... 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..."
And that sounds completely REASONABLE.
TAANSTAFL, people.
I know you really want a giant grant so you can get that PhD in Russian Literature but you know what? To live, you need money. To have money, you need to have a job. Life is work, and work is (usually) shit. If you're staggeringly lucky, you get to do something you love for pay. More often, you rationalize whatever enjoyment you can out of what gig you can get.
But you're simply not entitled to do what you want, and have someone else pay for it. I'm sorry if your parents never taught you that. We can talk all day long about the bullshit costs of colleges, and I'll entirely agree with you. My dad? Full ride as a football player in 1955 to the U of MN, this was noted in the paper as worth $300/year.
I went to the same school in 1986-1990, and my college education cost about $3600-$4500 annually as I recall.
My son going to the same school this year, it's about $25k/year.
Using RoI calculators on the web, my dad's tuition this year would be $2600.
Mine would be $9800.
That's absolute horse shit, and personally I suspect at least part of it has to do with ample grants and easy loans since the mid 1980s. Clearly, it's not going to teachers.
-Styopa
..what this is going to do is encourage people to get degrees with no marketable value,
What's marketable today doesn't necessarily mean it's marketable in four years. Electrical engineers have a horrible job market now as well as petroleum engineers. When I was in school, a math degree was worth as much as an English degree - all you could do with it was teach. Unless of course you were smart enough to get into actuarial or you minored in CS. Now it means something because unbeknownst to us, it became marketable 10 years later.
Education used to be about bettering oneself. To expanding ones mind and being a better citizen and bettering society. Now, it's nothing but vocational training. Business, engineering, computer science is just vocational training - it's not an education. I learned more about logic and critical thinking in my one Philosophy class than I ever did in any of my Math or CS classes.
And the trend now is to send STEM work overseas ,as well as accounting, law and even some medical.
Ted Turner was pressed by his dad to go to business school. He rejected that idea because he was to learn to lead and not manage. So, he studied the Classics. Study people like Alexander the Great. He took his father's little billboard company and Ted became a billionaire. He made a "worthless" degree work for him.
My point is that training for something marketable at least at the college level is pretty risky. And with employers demanding that people be passionate in what they do, it's kind of hard faking that when you did what you did just to get a job. And if you got the job, you'll be miserable since you're going to be doing it 55+ hours a week 52 weeks a year - vacation? (HA! Try to take it!)
Instead of indebting our next generation that is gonna create wealth for the country, or make deals so rich people can leech cash from whatever the next generation is gonna make after graduating, How about just make education free? I know. Crazy Commie talk!!
If you choose to go into debt under these conditions by choosing to take out loans to get an overpriced degree that doesn't lead to a good career, it's your own fault; it's clearly not necessary for succeeding in life.
That's kind of a simplistic take on a complex subject.
Not everyone has the means to pay for a degree in the field they want or need. Not everyone is suited for a given field. Not everyone is blessed with enough income to afford any degree, let alone a more expensive one. Does that mean they should be able to try to get one?
If no one could afford to go to school to become a heart surgeon or a pediatric specialist, should we just throw up our hands and go "Gee whiz, too bad there's no doctor available for you or your kid/parent/spouse"?
Some people want to achieve more than being a code monkey working for Amazon, and people are needed, yes needed in all sorts of careers, not just the ones you think are worthy or affordable.
You better fucking hope that some enterprising young college guy or gal has the guts to take on the debt required to be your doctor 10 or 20 or 30 years from now, because you're going to need him or her.
Personally I think education should be free, period, and available to those who can make the grades required to obtain whatever degree they can. Yes, education is expensive, but ignorance costs even more.
Just cruising through this digital world at 33 1/3 rpm...
we also need to drop the idea of college for all and stop makeing so that you need to go to a 4 year of more school to get a job. We need more tech / trades like settings that only take 1-3 years.
The only way I could see this working is if it were the only option for financing college. We would have to completely eliminate conventional student loans. Otherwise, the results will be very predictable. People planning on high paying careers in engineering or finance will choose conventional loans, since that's a better deal for them. These agreements will be used mainly by people who don't expect to make much money for a long time. The companies financing them will take that into account, and find that to earn a reasonable payback, they have to set the repayment percentage really high. High enough that most people will end up worse off, not better.
Remember, risk has negative value. You have to pay people to accept risk. Under these deals, the companies take on more risk. They won't do that unless they get something in return, that is, unless their projected profit is greater. So on average, graduates have to end up paying more, not less. And unless you force the wealthier graduates to bear that whole burden, it will end up falling on the poorer graduates.
"I'm too busy to research this and form an educated opinion, but I do have time to tell everyone my uninformed opinion."
to bypass rules and laws about how much interest can be charged for certain types of loans. I can't think of any other reason to do this.
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"non-profit" does not mean charity or unbelievably high quality or even moral fibre. It just means a different financial structure.
Virtually all respected colleges and universities with any sort of historically recognized quality are non-profit.
For-profit universities (if they can even be called that) are in many cases little more than diploma mills. The primary goal is to move bodies through the system as efficiently as possible and extract the maximum payment, not provide a usable education.
FWIW, I think people are better off with the eponymous well-rounded education, but I also think they're better off with 5 years of global travel, too, but that isn't the kind of hoop-jumping social standard (yet) that a 4 year college degree currently is.
So much of "going to college" isn't about the well-rounded part for probably 90% of the students -- it's about achieving some vocational credential that employers want before they will hire someone. In many cases, the vocational education really has no bearing on the actual vocation. A degree in marketing doesn't actually provide you with the specific education to do any specific marketing job.
And even where this is some kind of specific vocational skill being learned (engineering, medicine, etc), how much of even those educational experiences are spent on classroom instruction that's actually vocationally beneficial? Could we train civil engineers in 3 years instead of 4 by cutting out the crap? Could we train doctors in 6 years or even 5 if we cut out the nonsense? Is it REALLY vocationally beneficial for a doctor to have a semester or year of organic chemistry?
There's so much hand-wringing about the cost of college but almost never does anyone question the underlying assumption that the college experience as we know it is actually beneficial. Much of it seems to be a way of socializing the costs of corporate HR screening and training, much of which would be better for the corporations to do themselves, so they can focus on the specific attributes and skills they want.
And if you think about it, it doesn't even socialize those costs well -- the in-demand jobs demand higher salaries, so where there is demand for workers the corporation is paying some of the inflated educational costs themselves. It all seems to be a giant pork barrel for Universities, who manage to jack of tuition relentlessly without ever reforming a sclerotic educational system that doesn't really produce well-rounded graduates anyway.
You may hate liberal arts majors, who who do you think does the 3d modeling, scripting, and artwork for those games and movies you spend your spare time masturbating to?
Look around, that shit you buy, like your pants, wasn't designed by engineers; it was designed by liberal arts majors and implemented by engineers. Even your cheap-ass corelle plates.
You're talking about completely different worlds. Someone who goes into art and 3d modeling isn't the liberal arts majors that people are complaining about. Someone who loves to draw and comes up with a reasonable plan to make a living at it isn't the problem. Likewise for the person who wants to be a writer or a musician and has an actual plan. You can make a living as an artist, a musician, or a writer. The odds are probably much better that you can scrap by as a "starving artist" than it is that you can be a professional ball player. I have no problem with someone pursuing their dreams and either having a backup plan or knowing that they might not ever make a lot of money. The problem is when someone wracks up a huge amount of debt on a major without a clue what they are going to do with it after they graduate. If you have 80k dollars worth of debt and you either have no career plan or your only career plan is to paint what you want and hope people fall in love with your paintings then you have a problem. Likewise if you have 80k dollars worth of debt and you're planning on getting a job that pays only 20k per year. You should never go into debt for a degree that you have no idea how it will help you get a job and if you're going to go into debt on a long-shot major then you need to have a plan, a backup plan, and a backup to your backup plan on how you're actually going to pay your debt back. It's completely irresponsible to go into debt without any plan on how you're going to pay it back whether it is for a house, a car, or an education. And winning the lottery (or the virtual lottery) doesn't count.
THIS. Seriously, treating 18+ year olds as children incapable of making their own informed choices is one of the reasons that student loan debt is an enormous problem.
We don't treat them as children incapable of making their own informed choices. If that was the case they couldn't enter into these contracts in the first place.
No one is even asking for that. They merely want laws governing student loans to take the disparity in maturity and available information between an 18 year old and a bank into account.
-- All that is necessary for the triumph of evil is that good men do nothing. -- Edmund Burke
I'm a huge fan of the social sciences to teach people critical thinking, how to argue and write persuasively. done right, it produces well-rounded individuals who can go on to be successful in a number of fields. A university degree is more than a trade school in which you go to school to be a plumber, or a chef, and then graduate and go do these things.
Unfortunately, the current social sciences at U.S. Universities is more likely to turn out a 26 year-old government social worker who thinks all parents are idiots who need her detailed supervision and spends her free time in "safe spaces" demonstrating for vague left-wing causes in the hopes of finding an enlightened boyfriend who'll stay longer than one night.
If instead, it were to actually "teach people critical thinking, how to argue and write persuasively." and produce "well-rounded individuals who can go on to be successful in a number of fields.", then the ISA market will value that future success and ability to repay in the future appropriately.
The party of stupid and the party of evil get together and do something both stupid and evil, then call it bipartisan.
"It's completely irresponsible to go into debt without any plan on how you're going to pay it back"
Maybe you are right but then, what would you call the one that lends money to somebody without a pay back plan?
Specially considering that most probably the lender knows to the petty detail what are the chances and income distributions for somebody majoring in hellenic studies while the 18 y.o. potential borrower does not.
I would agree completely except that a majority of student loans are funded by the federal government which doesn't differentiate between different majors. If student loans had actual real underwriters then they most likely would look at majors and have different risk profiles for different majors. Another gotcha is that because the federal government does not differentiate between majors, once you have a bachelor's degree, you are no longer eligible to get student loans to pursue a different bachelor's degree even if that second bachelor's degree would actually allow you to get a job.