As the student debt problem keeps getting worse, many politicians are looking at solutions. Many 2020 Democratic presidential candidates want to wipe the slate clean. The problem is, that puts taxpayers in line to pay the $1.53 trillion students owe. Yet, there might be a better way to take care of student loans. It’s called the “income share agreement.”
For many, getting a college degree is like an investment. You put a lot of money into it and hope it helps you get quality employment when you graduate. But, what if you getting a college degree was an investment from someone else? Let’s say a wealthy person makes an investment into a college. In turn, the college uses that investment to pay for your tuition.
The investment can pay for all of your tuition or part of it. The students who receive this investment money will most likely be the most vulnerable. If a number of investors are willing to jump in, the number of students who can be helped jump as well. So, what do the investors get out of the deal? That’s the interesting part.
Rather than being beholden to a loan company, you would pay back the investor. You would make an agreement with them to pay back the loan with a certain percentage of your future income. This is why it’s called the “income share agreement.”
Student Loans and the Income Share Agreement
“It’s a way for the school to say to students, ‘You’re only going to pay us if we help you succeed’,” explains Beth Akers, co-author of the book “Game of Loans.”
Andrew Hoyler was thrilled when Purdue University got him an ISA loan. He will now only pay back 8% of his income to over the debt.
“After that 104-month term ends, if you still owe money, it’s forgiven, forgotten, you don’t owe another penny,” he says in my latest video. “Now, if I find myself in a six-figure job tomorrow, there’s a chance that I’ll pay back far more than I took out.”
Hoyler says it wouldn’t be a big deal if he paid back more than he owed. He would have a secure job and income, so he would have the security he needed. It’s about not having to pay more than you can afford at any given time. Most student loans are unaffordable to people struggling to get by. They have to pay back the amount regardless of what they’re making.
“It may also sway students away from majors that don’t have job prospects,” says Hoyler. ISA recipients learn “not only what a career may pay, but how stable it may be, what the future is like.”
