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

[Freischutz]

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.

Your (financial) success (as a business) depending on the success of your graduates is a principle that should be applied to all for-profit schools because currently their business model seems to be to trick students into life long debt slavery in return for a truly useless bargain basement education.

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

[jellomizer]

There are some big questions to this.
I got my masters degree from an another school then my undergrad degree. Who is to say how much of my salary is from my undergrad education and how much from my masters.

A student after a year or two determines that they don’t like that school and switch. Or fail out and one they matured they went to an other school.

Or the cases of the Billionaire college dropouts like Bill Gates, who realized they could make more money with their own business then wasting more time at school.

This method is hiding the fact the College Education is too expensive and a way to make college administrators lives easier by not finding area to save money. Such as not keeping on building new building but utilizing the space they have.

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

[Anonymous Coward]

"trick students into life long debt slavery" - not living beyond your means and simple math... if you can't do both your not smart enough for the watered down courses that pass as 'university' now days

Sounds like someone is either a shill from for-profit, naive, or an AH. What GP said is talking about many for-profit universities (e.g. DeVry, UoF, etc.) that don't care about their students' future but rather the number of enrollment. The more they can enroll, the more money they will get from the government. They don't care whether these students will graduate and become successful in life. The drop out from this type of universities is way higher than any public universities (including well-known private universities).

The trick part is from getting people enrolled. Their recruiters sell dreams to those who aren't capable of looking far ahead in their lives -- average people. There are a lot more average people than you think. I know you are above average, so please stop using yourself as a standard (the motto "if I can do it, you can too").

This has NOTHING to do with living beyond their mean.

Re:Sounds good

[parkinglot777]

It is bad as you said in the UK, but it is a different type of loan compared to this ISA. The ISA loan has fixed terms that has nothing to do with interest. The main term is to pay back at a certain percentage of the current annual income for a fixed period of time. As a result, the eligible amount loan will depend on the possible minimum annual salary after graduation from a selected program. There could be some more additional terms, such as the loaner may not need to pay back at all after not being able to find a job for a certain continuous period of time, there is a cap for the total pay back and the loaner can stop paying once the pay back hits the cap, etc.

Besides, the issue about going out of the country and not paying back is not likely to be in the U.S. Europeans can easily leave their home country and go to work in another European countries. As a result, these people don't pay taxes back to their home country (and not paying back the student loan because no income shows up in the home country). In the U.S., people simply move to another state. However, the loan system covers the whole nation, so it is not likely to be a major issue.

Your example is legit, but it doesn't apply to the type of loan (ISA) and the boundary in the U.S.

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.

Re:Sounds good

[Gavagai80]

Money does not equal success. This will simply lead to pressuring students into more lucrative majors while completely neglecting the rest of the university. Might as well just open a trade school.

ISA = Indentured Servitude Agreement

[Anonymous Coward]

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The exploding cost of education

[tinkerton]

This article has a telling graph of how education has been moving out of reach for a large part of the US population
https://www.zerohedge.com/news...

While some technological things have become much cheaper the relative cost of education has increased manifold.

the student loan crisis is then just one aspect of this problem. It's the tip of the iceberg. I still see people focusing on the 'leeches' , people somehow abusing student loans. I'm sure that happens, but using such examples to represent the situation is entirely wrong. As is the solution which is presented in the article on here. The leeches are on the other side. They're the people getting rich off this.

Re:The exploding cost of education

[tinkerton]

Looking at averages also underestimates the seriousness of the problem because it disregards the distribution of income.
When average income rises but mainly goes to a small minority, then the majority can actually have a lower income and they are even worse off.

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.

...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?