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

Posted by EditorDavid on from the investing-in-your-future dept.

"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.

5 of 180 comments (clear)

  1. Sounds good by Kokuyo · · Score: 5, Interesting

    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.

    1. Re:Sounds good by jellomizer · · Score: 5, Insightful

      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.

      --
      If something is so important that you feel the need to post it on the internet... It probably isn't that important.
    2. Re:Sounds good by Anonymous Coward · · Score: 5, Insightful

      "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.

  2. ISA = Indentured Servitude Agreement by Anonymous Coward · · Score: 5, Insightful

    this space intentionally left blank

  3. I predict a short run by TimothyHollins · · Score: 5, Interesting

    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.