The Journal Gazette
Sunday, August 05, 2018 1:00 am

Paying for college through future pay

Some students find it better than taking loans

ASHLEY SLOBODA | The Journal Gazette

A growing trend in paying for college has yet to catch on in northeast Indiana: students promising their schools a percentage of their future salary in exchange for tuition.

This type of contract, known as an income share agreement, is different from traditional loans, in which graduates pay principal and interest until the balance is zero. Income shares allow graduates to pay their alma mater a percentage of their salary for a set period of time; terms can vary.

Norwich University in Vermont announced in July it will become the latest school to offer such a program. It is starting on a small scale, mainly for students who do not have access to other types of loans or are taking longer than the traditional eight semesters to finish their degree.

Purdue University has offered this option to West Lafayette students since 2016. The Purdue Research Foundation established the Back a Boiler program and distributed more than $2 million to about 160 juniors and seniors in 79 majors in its first year. The program expanded to include sophomores for 2017-18.

Purdue hasn't, however, brought the program to its Fort Wayne campus.

“It is something we could look at in the future,” Purdue University Fort Wayne spokeswoman Nicole Hahn said in an email.

Grace College, Indiana Tech, Ivy Tech Community College and Trine University also don't offer income share programs.

“However, the concept is innovative, and it gives students another viable pathway that makes pursuing an education possible,” Indiana Tech spokesman Matt Bair said in an email. “We will continue to monitor these types of agreements to learn more about their effectiveness and the impact they have on students.”

Trine supports efforts to make college more affordable, which is why it participates in programs such as the Questa Foundation grants for northeast Indiana students, university spokesman James Tew said. 

Questa offers forgivable loan programs and partners with nine area colleges. Questa scholars can receive additional benefits by attending a partner school, such as an additional loan reduction upon graduation.

“Trine would certainly consider any program we felt would benefit our students, but we also know there would be many logistic hurdles to overcome to make an income share program practical for students and for Trine,” Tew said in an email.

Those touting income share agreements say they give colleges greater incentive to help students find high-earning jobs after graduation because a higher salary means the school may recoup its investment in a shorter period of time.

For some students, income share agreements are seen as less risky, especially if they end up in a lower-paying job or struggle to find work after graduation. While students are unemployed or earning below a certain threshold they don't have to pay anything back.

“Taking on the debt through a contract, where you don't take on a debt per se but instead will repay a portion of your future income, has a certain appeal to students when the concept is fully explained to them,” said Clare McCann, deputy director for education policy at the New America Foundation, which bills itself as a “community of innovative problem-solvers.”

Because employment and salary determine repayment, it's possible providers could be seen as discriminating against recipients who choose lower-paying professions.

“If income share agreement providers aren't careful, they can definitely see unintended consequences in discriminatory terms toward students. This is one of the biggest differences between income share agreements and federal student loans,” McCann said. “Federal loans offer the same terms to all borrowers.”

Purdue addresses this concern in the Back a Boiler FAQ. It doesn't have requirements stipulating the nature or type of employment students choose after graduation.

Income share agreements were proposed by Milton Friedman in 1955, and Yale University briefly experimented with the idea in the 1970s. In the past decade, technical training programs, such as coding boot camps, have used it largely because participants do not have access to federal student loans.

Andrew Hoyler, 22, graduated from Purdue last year with a degree in professional flight. He is working as a pilot for American Airlines regional carrier PSA Airlines.

“One of the biggest pros for the income share agreement was the fact that out-of-college pilots do not make a lot of money, especially looking at the costs for an educational program,” Hoyler said.

Hoyler is paying back 8 percent of his income. Since future salary is generally unpredictable, it can be difficult to forecast how much a student will pay back over time, although most agreements do place a cap on the amount paid back.

Hoyler took out federal loans but said the income share agreement helped him avoid working multiple jobs while starting out last year as a flight instructor. Hoyler said he may end up paying more for the income share agreement in the long run as his salary rises, but deemed it a worthy trade-off.

For students who can't make ends meet with scholarships, grants and federal loans, income share agreements can help those who otherwise would turn to parents or private loans.

“The schools are doing it now because they want alternate financing models,” said Vemo CEO Tonio DeSorrento.

The Associated Press contributed to this story.

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