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Sen. Todd Young's tuition plan: 'Pay your way through school, after school'

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Rep. Todd Young has introduced the &#8212;&#339;Investing in Student Success Act of 2017&#8212;� in order to facilitate an alternative model of financing education. ( Jim Avelis/The Tribune-Star via AP)

When Sen. Bernie Sanders, I-Vt., asked Betsy DeVos to endorse tuition-free college, the incoming education secretary parried the demand with an undeniable observation. "There's nothing in life that is truly free — somebody is going to pay for it," she replied.

That exchange traversed the familiar arguments about government programs that distinguish conservatives and liberals. A bipartisan group of lawmakers, however, has a growing inclination to sidestep that debate. They want college students to receive an education without putting young professionals or the federal government further in debt, and they might have figured out how to do it.

"Big picture here: There's currently $1.2 trillion in outstanding student loan debt held by the federal government, and 43 percent of the roughly 22 million Americans with loans weren't making payments as of Jan. 1," Sen. Todd Young, R-Ind., told the Washington Examiner. "There's certainly a need for some sort of way to finance your college education that does not place the risk on taxpayers."

And so, Young has introduced the Investing in Student Success Act of 2017 in order to facilitate an alternative model of financing education. Critically, the funding would not come from the federal government, but private companies who sign "income-sharing agreements" with students. As the name implies, the investor finances the student's tuition, in exchange for a percentage of the individual's income for a set number of years after graduation.

"This is a way to pay your way through school — after school — after you've already completed your degree program," Young said.

This idea has been derided for years as a form of "indentured servitude," yet proponents of the agreements believe that overlooks how the contracts could help students, particularly those from lower-income families.

"Students simply agree to pay an affordable percentage of their future income, whatever that income ends up being and however it is earned," Kevin James and Rooney Columbus wrote last year at AEI Ideas. "Compare this to traditional loans where students are on the hook no matter how things turn out and how burdensome loan payments may be."

Purdue University has launched a pilot program to allow about 400 students to receive education funding through such agreements. Young, who took office in January, is using the first piece of legislation he introduced as a senator to help Purdue and others expand those programs. He developed several of the key components of the bill with Rep. Jared Polis, D-Colo., when they served together in the House in 2015.

"Right now, there's a great deal of uncertainty among potential investors as to whether or not courts of law would recognize these agreements," Young said. "What our legislation does is it offers that legal certainty. It also provides protections to students who enter into income-share agreements. So we protect students from usurious rates of interest and also ensure that there is a basic element of affordability to any contract that is consummated."

The legislation stipulates, for instance, that no one making less than $18,000 a year has to make any payments on the income-share contract. It also sets guardrails for the size of the payments: A person who agreed to repay the money in 15 years or less can't be required to pay more than 15 percent of each paycheck; on a 30-year contract, the percentage would be capped at 7.5 percent.

Supporters of the programs take pains to make "the progressive case" for these agreements, emphasizing that contracts help poor people in two ways. First, they provide a source of financing to students whose parents don't have the wealth to cosign a loan. And secondly, they give those students a way to gauge the economic value of their majors — a student pursuing a degree perceived as highly valuable can negotiate an income-share agreement that takes a lower percentage of future income.

"Purdue calculated her expected income after graduation," a pair of investors in the university's program wrote of a particular student's contract. "She was assigned a payment of 4.8 percent of her monthly income for nine years. Her maximum payment is capped, and her agreement states that she will not be required to make payments if she makes too little. Her monthly payment will be around $200-$300, whereas the monthly payment for her private loan would be $350-$500."

In the investors' ideal world, they'll sign income-share agreements with the next Mark Zuckerberg and receive the benefits of his sky-high income. "The amount of payment is based on income, so if a student commits to an ISA and earns a high income after graduation, they may pay more to the fund than they would have with conventional debt," as Purdue University explains in a memo about their pilot program. "However, Purdue Research Foundation caps the total amount paid."

Young believes that most of the implementation of the program — the mechanics of how the investor and the student agree to change payments when someone gets a raise or gets laid off, for instance — are best left to the negotiators.

"I don't conceive of a significant role for the Department of Education here," he said.

If that holds true, and income-share agreements gain popularity, then the DeVos-Sanders debate about tuition-free college might become that much more academic.