As the cost of education continues to skyrocket, some colleges are offering a different approach to financial assistance.
Income share agreements have made their way to approximately 30 public and private colleges and universities across the nation. In this type of agreement, an institution pays the tuition for a student in return for a percentage of their future salary. While traditional loan payments can put a noose on students after graduation, payments on income share agreements, or ISAs, are strictly based on the graduate’s salary for a pre-determined period of time.
Interestingly enough, the concept was first proposed by conservative economist Milton Friedman in 1955, and has been tested and refined over the years. Yale’s income share program failed miserably in the 1970s, but that hasn’t deterred financial innovators from trying to perfect the process at schools of all sizes.
The need for creative financial aid solutions goes without saying. Average student debt for college graduates exceeded $37,000 in 2017, shackling millennials and postponing major life milestones, like getting married and buying a home. Moreover, when students default on their federal loans, taxpayers ultimately absorb the costs.
The beauty of the ISA is that it demands some level of accountability from the college. Colleges can’t afford to provide useless degrees when the amount of money they receive from a student is based on their income after graduation. For once, academic institutions would have a vested interest in the success of their graduates, outside of their capacity to make a future donation.
Naturally, this program would likely encourage schools to favor higher-paying degree programs, like engineering, medicine, pre-law, and computer science. This has led some to question whether such a program might discriminate against students pursuing fields that pay less such as social work, teaching, and journalism.
While this is all yet to be seen, colleges offering ISA programs would at least be more likely to encourage students to pursue the jobs that are available to them in the workforce, bridging the ever-growing skills gap between workers and jobs that the Trump administration has been trying to solve.
Rather than “following their dreams,” students might actually be directed to programs that provide both personal career satisfaction and a proper living. Imagine that.
