We all know the deal. You work hard in high school and you get into college. After that, you are left to wrangle with how exactly to pay for the cost of an education that in some cases exceeds $51,000 a year just for tuition. And that tuition figure rises every year. Throw in fees, room and board and travel and the costs of attending college can be staggering and the debt burden long-lasting.
More than ever, parents are borrowing in an effort to help finance their kid’s education and then defaulting on those loans. And kids are graduating with suffocating levels of debt. A typical student graduates owing twenty-two thousand dollars and many owe much more.
What if we are looking at this paradigm all wrong and there is another way, a better way to finance education? Now there are some new ideas out there. In Flipping the Economics of Paying for Education, Because They’re Upside Down, Andrew Ross Sorkin, a columnist for the New York Times, reports about “a novel idea that proposes to rewrite the economics of getting an education.”
That idea, which has been piloted by Purdue University is that students attend school tuition-free but upon graduation, they are required to pay back a percentage of their income, provided they get a job with a good salary. Purdue calls the program the Back A Boiler ISA Fund and says it is “an innovative new way to help make school more affordable for Purdue students.”
It is available to rising Sophomores, Juniors and Seniors. It’s not a traditional loan in the sense that a student does not accrue interest on the loan amount. Students enter into what is called an Income Sharing Agreement with the school and are obligated to pay the school a percentage of their income for a certain period of time after graduation.
Sorkin states that this
approach is meant to treat students as investments rather than cash cows — a fundamental shift that could finally lift the crippling debt load we routinely push onto students. But it also comes with a peculiar kind of danger: By seeking safe investments, programs like this could cast aside the strides made to expand educational opportunities to higher-risk students and reduce the appeal of educations that focus on noble, but lower compensated, professions.
Some argue that this new method of paying for an education creates all the right incentives. Schools will fare better if they enroll motivated students, teach them successfully, find them jobs and ensure that they succeed. Under the current system, a school gets its money no matter what happens to the students. In theory, a school has no incentive to do any of the above. The burden falls entirely on the student.
Many questions remain. Is this a scalable model? Does society even want to scale this system to four-year universities? Might an unintended consequence of this type of system be that fewer people will choose to major in the humanities because it is more difficult to find a high paying job as an art major, for example? What happens to students to take important, but perhaps not well remunerated positions, such as assistant teaching. And what happens to the proverbial late bloomer who doesn’t necessarily present as “motivated” early on?