Universities Want a Cut of Students’ Future Income

With outstanding student debt at $1.5 trillion, policymakers and education providers are looking for ways to make college more affordable. Though many argue for enhanced public investment to reduce tuition, others are turning to debt alternatives like income share agreements (ISAs). Through these contracts, universities (often with funding from private investors) contribute to a student’s education in exchange for a cut of their future income over a set number of years. Recently, journalist Andrew Ross Sorkin advocated for ISAs in The New York Times, calling one ISA-funded education program a “radically new approach to funding education” that could work for students, “not just for schools and bill collectors.” However, our forthcoming research indicates that the ISAs that are emerging throughout the country may not match up with their promise and instead put students at risk.

To many, ISAs are a potential silver bullet for the student debt crisis. The appeal is that ISAs would allow students to reduce their risk compared to loans. Loans stick students (and often, their families) with all of the risk if their education doesn’t pay off. Through ISAs, funders only make money if the students do, and students will never owe more than their earnings can support. In reality, however, funders can shape ISAs to quietly push much of the risk back onto students by crafting contracts that work to their advantage, avoiding consumer protections laws and aggressively marketing the alleged advantages of ISAs.

The program touted by Sorkin’s recent column, Lambda School, offers little public information about the terms of its ISAs, so it is difficult to assess its impact on consumers. Instead, we looked at Purdue University’s “Back a Boiler” program — perhaps the most prominent and acclaimed ISA programs in the United States. Back a Boiler illustrates how ISAs are not a solution to the high cost of higher education but rather another avenue for students to become trapped…

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