More Colleges Try Forgoing Tuition For A Percentage of Future Income (yahoo.com)

"Some innovative colleges, in partnership with private investors and a small number of philanthropies, are experimenting with a new financing model called 'income share agreements' or 'ISAs,'" reports Yahoo Finance: With an ISA, instead of assuming a fixed debt obligation, students simply agree to pay an affordable percentage of their future income over a set time period, subject to an overall cap. High earners will have larger payments than low earners, but all will have an affordable payment, based on what they will actually be making. Importantly, when the college is providing some or all of the funding for the ISA, its return will be aligned with its students' post-college earnings, giving it economic incentives to make sure its students both graduate and find jobs. The college is, literally, invested in its students' success...

With ISAs, there is no principal or interest. Thus, they are much better suited for low income students as their financial obligations never exceed their ability to pay... In a recent paper commissioned by the Manhattan Institute, we looked at the small but growing number of colleges and universities offering ISA programs. Indiana's Purdue University launched the first such program in 2016. About a dozen other institutions have now followed suit, including Lackawanna College in Pennsylvania, Clarkson University in New York, and the University of Utah. Most of these pioneers offer ISAs to students as an alternative to non-subsidized federal loans, though a few are offering them as a complete substitute for borrowing... A common feature of all these ISA programs is that they require payments only when the graduate meets a certain income threshold. All impose time limits and caps on the total amount that needs to be repaid, though they differ widely in where they set those caps and limits.

Comments

Sounds good

[Kokuyo]

If someone's success depends on your success, chances are they're going to help you actually succeed.

Let's see how this works out.

Re:Sounds good

[AmiMoJo]

This has been happening in the UK for a couple of decades, basically a loan that you only repay once you are earning. I am still paying mine off.

A lot of people are headed for having it written off due to not earning enough in the 25 year time limit. There is also the issue of people going overseas and not paying it back.

It used to be a good deal when the interest rates were fixed at a low level, but now it's not nearly as attractive.

Re:Sounds good

[idji]

This is similar to HECS (Higher Education Contribution Scheme), how Australians have payed for University since 1991, and payed back through taxes after you start earning.
What is interestingly different here is that those with better paying jobs pay more under ISA, and that could lead to discrimination against students who are studying courses that pay less in jobs.
https://www.studyassist.gov.au...

Re:Sounds good

[Mr. Dollar Ton]

It really isn't. It is propagating a very well-known market failure, which tax-funded research is supposed to rectify. Fundamental science is, for example, a field that is traditionally underfunded by the markets and the reason is that the returns from understanding basic physics are very small in the short run, although nearly immeasurable in the long term, so the "investment" and pay are very low.

If you validate this with your funding scheme, you're doing the opposite of what you should.

Re:Sounds good

[slashdot_commentator]

I disagree. The problem is that parents don't raise their kids to be financially independent at the age of 18, to the point where they would be concerned about taking on the loans. It doesn't matter if you wise up by the age of 22, you're pretty much a slave at that point. The other problem is that a college degree has been mythologized as a road to financial success, to the point that colleges (and public schools) sell the myth, and parents (affecting mostly the poor) enable their kids to become debt slaves.

The Congress and the banks have basically made student loans a predatory industry, along with "payday" style cash loans.

When I look at the "value" of a college degree, I look at teachers as a canary test. They have to be highly educated to take on such a career (in NY), and what's their financial status? They're living paycheck to paycheck, can barely afford to live in the region, and are worried they won't have enough money to help put their kids through "state college" *and* their retirement (and keep property, for those who have it).

Its especially crazy to think this status quo can be maintained when AI will eventually cut into much of the entry level jobs on the professional level. Forget the truck drivers (although they're screwed if they were counting on a career), computer systems are already reducing head counts in paralegal and lawyers at large firms, and shocker, medicine is basically a pattern matching machine to determine diagnosis, and follows a protocol to address the diagnosis. You don't need a doctor's education, who is able to piece together exceptional situations that require going "off book", for 90% of people's ailments. Computers are going to wipe out professional entry level jobs the way that it wiped out the bookkeeping industry before the 1980s.

I predict a short run

[TimothyHollins]

This model will collapse when companies start offering a low salary for the agreed upon time period with a giant bonus to come after. It will also incentivize graduates to take low-income positions for the first few years (which may not be a bad thing for the graduates, but it will hurt the ISA programme). Unless subsidized, this programme will not be financially viable.

People will always take the best approach for themselves, and companies will be more than happy to capitalize on that. Paying out a large bonus after X years is much better for the company; 40k for 3 years + a 45k bonus is better than 60k for 3 years for the company and guarantees a 3 year employee retention. The graduate that can be paid less at decent retention is more appealing than the graduate that wants a full salary right away and might leave at any moment for better opportunities.

Re:I predict a short run

[bugs2squash]

The model will die because if it fails early it just plain fails and if it is successful early on there will be colleges with a long term income stream ahead and current running costs, so they will be bought out by asset strippers who will keep the income and gut the rest of the university.

Burn These Predatory Institutions to the Ground

[Anonymous Coward]

They want to make you a wage slave, no better than perpetual leasing on a car. Sounds good because the human mind thinks monthly

Everything the Government gets into gets more expensive. Housing in the 1930s from Fannie Mae Freddie Mac because "everyone should be a homeowner". Student tuition from WW2 on (GI Bill, and then student loans). Medicine from the late 1960s on (Medicare, Medicaid from LBJ's great society.)

What basically happens is all this government credit inflates what people can pay monthly upfront. And where there is an inflation of credit, there's an inflation of rising cost. Imagine you gave every American a govt sponsored credit card with a million $ credit line. First, over half the people would have absolutely no self-control and would go bust. On the flip side, with all this credit swamping the market, inflation would be through the roof. Well same fucking thing here.

That's why we have textbooks that ought to cost $30 going into the hundreds with a few sentences swapped as an "upgrade" every year. That's why tuition keeps going up, up, up when the average student's major needs no more major equipment than they did from the 1950s. That's why we need more competition in accreditation, less state barrier with credits, and accreditation should mandate transfer of credits. It's like we gave the big guys all the benefits of subsidies of the EU, but the people have none of the benefits (migration of labor vs migration of capital, etc). We're a fucking joke.

Now they're coming for your livelihood perpetually. You know why this sucks? Many college educated people get jobs with absolutely no connection to their degree. And don't think they'll won't take a slice of that too.

For most people with a middle of the road career not expecting to be a STEM superstar, go to Europe, find a apprenticeship that will actually pay you (very minimum) and get actual job skills rather than learn about Shakespeare and other tired tangent bullshit for years on end. College wasn't about work in the beginning, it was about enlightened learning, but that don't mean squat in the job market and is a poor fit despite being sold as the "dream". The only dream here is that's it's a good value for 90% of people. Give it the finger and don't let it enslave you.

...but here is why it will not work

[Roger W Moore]

I agree that there are a lot of attractive things about ISA's but they have a fundamental flaw that will prevent them from working: they are voluntary. Students ending high-earning degrees like medicine, law, science and engineering where they are reasonably certain that they will have significant earning potential will be far worse off financially signing up for an ISA vs a regular loan. Since loans will certainly be available to these students why would any of them sign up for an ISA which will cost them far more?

The result is that the high income students will sign up for loans and so the ISAs will only attract low income students making them financially unfeasible because they will have lost their upside.

The only way to make this work is to have ISAs compulsory for all students...but we already have a system exactly like that called income tax which is how University education always used to be funded. So how about we go back to that and then when high earners end up paying higher tax rates they will at least know that they benefitted from those taxes when they were a student and so perhaps they may object to them - and try to avoid them - a bit less than they do now?