Purdue University proposes alternative to student loans: income sharing

My friend Terrell sent this article to me from the Lafayette Journal & Courier. It talks about a change to Purdue’s student assistance program that will help students to think twice about what they are majoring it, and whether it will pay off.


Purdue University is close to bringing income share agreements to campus by the next academic year.

Purdue Research Foundation is finalizing a contract with a partner firm that will fund student tuition in return for a percentage of income for several years after graduation, Brian Edelman, PRF’s chief financial officer, said Tuesday.

Purdue announced in August it was seeking a partner to launch the agreements as an alternative to student loans. The university received seven “expressions of interest” and narrowed the search down to one finalist, although Edelman said it’s too early to identify the firm and how the partnership might work.

But more details about how Purdue might implement the alternative have come available. PRF will complete a sample term sheet in the next few weeks and begin planning with a pilot of 100-300 students as early as this spring, Edelman said. Those students could receive funding for the entire 2016-17 year.

During a University Senate meeting Monday, Edel estimated what a contract might look like for students: A $10,000 investment might cost 3 percent to 5 percent of income for five to seven years. An individual earning $48,500 a year — the median income among college graduates in 2013, according to the National Center for Education Statistics — would be on the hook for as little as $7,275 or as much as $16,975, depending on the terms.

This part made me laugh:

Other faculty members expressed concern that such agreements might favor STEM or business students, who typically have higher incomes and better job prospects after graduation, and steer the university and faculty toward producing graduates who earn more income.

Well of course the faculty don’t want students to think about getting a return on their degree – because then most of them would be out of a job! College education only makes sense if you can get a return on your investment. In theory, you could study anything and get a return on your investment. In practice, you’re better off with STEM degrees – lower post-graduation unemployment, and better starting and median salaries.


Starting and Mid-Career salaries by profession (click for larger image)
Starting and Mid-Career salaries by profession (click for larger image)

I love this idea by Purdue, it will really help students to think about what they are studying, and that is good for taxpayers, because something tells me that we are going to get the bill for the $1 trillion in outstanding student loans.

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