Guest Post by John Stossel
Student loan debt keeps growing.
There is a better solution than the ones politicians offer, which stick the taxpayer or the loan lenders with the whole bill.
It’s called an “income share agreement.”
Investors give money to a college, and the college then gives a free or partially free education to some students. When those students graduate, they pay the college a certain percentage of their future income.
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. Now he’s a professional pilot, and he’ll pay Purdue 8% of his income for 104 months.
“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 wouldn’t mind that, he says, because of “the security of knowing that I’ll never (have to) pay back more than I can afford.”
What students pay depends partly on what they study.
On a $10,000 ISA, English majors must pay 4.58% of their income for 116 months. Math majors, because they are more likely to get higher-paying jobs, pay just 3.96% for 96 months.
“It conveys information to the student about how lucrative a different major’s going to be,” says Akers. “Some think that’s unfair, but really that’s just a way (investors) can recapture the money that they’ve put up.”
“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.”
“We should invest in students the same way that we invest in startups,” says Akers. “Share equity.”
With one difference: The college picks the student, so investors don’t have a direct relationship with the student.
Purdue ISA recipient Paul Larora told me, “We don’t know who the investor is, but I’d love to give him a hug or buy him a beer!”
“The institutions are saying, ‘If I’m operating as the middleman, I can make sure that no one’s taking advantage of my students,'” explains Akers.
Sadly, many politicians would rather have the government handle student loans and charge all students the same rate.
President Barack Obama signed a student debt relief bill that he claimed would “cut out private middlemen,” meaning banks. He said that “would save taxpayers $68 billion!” It didn’t. Costs to taxpayers increased.
Some politicians are so clueless that they still blame banks.
In one hearing, Rep. Maxine Waters, D-Calif., chair of the House Financial Services Committee, demanded JPMorgan Chase CEO Jamie Dimon tell her, “What are you guys doing to help us with this student loan debt?”
“We stopped doing all student lending,” responded Dimon, pointing out that “the government took over student lending in 2010.”
Instead of forcing banks out of the loan business, we should get government out of it. Banks are in the business of assessing loan risk.
If actual private lenders, people with skin in the game, made loans, then they’d care about being paid back.
They’d tell students which majors might lead to higher-paying careers and warn them that studying sociology, art history or gender studies may make it tough to get out of debt.
But with the government charging the same rate to everyone, students don’t have much incentive to think about that.
The Brookings Institution found that 28% of students don’t even know they have a loan.
The market would make better judgments and stop students from starting their adult lives under a burden they may never escape.
Yet some people still call ISAs “predatory” because investors hope for profit. They say ISA makes students “indentured servants.”
Larora had a good answer to that, which is also serious advice: “If you don’t have a job, you’re not paying anything! Where’s the servitude in that?”
John Stossel is author of “No They Can’t! Why Government Fails — But Individuals Succeed.”
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Homeschooling for the win!
I like it. Alot. But, the low IQ’d will not. Why? Because since schools and investors have skin in the game, they will only admit those they are willing to bet on and I don’t know ANYONE (except politicians) willing to bet on low IQ uh, shall we say ghetto people?
Soooo, it be rayciss.
I don’t care how you slice and dice it, you’ll be paying poor people in one way or another.
The fix to the higher education issue as relates to student debt is simple.
Graduates must be provided a job through the institutions job placement program in the field of study the degree signifies. What job placement program – you may ask? The one to be created to make higher education an honest enterprise by forcing them to make good on their currently bogus promises.
For 5 years after graduation, the institution is required to place graduates with jobs in their respective fields of study. If they can’t do that, the graduate get 5 times the tuition money back.
This proposal will quickly get rid of all the bogus Social Science and Humanities degrees along with the rabid ‘professors’ of nonsense inciting the culture wars.
Bullshit. Think like a man for a change. You know exactly what’s going to happen here. The same low lifes that are clogging up higher education right now, are going to continue to get $100,000 a year government jobs doing nothing and that’s how Wall Street gets paid. And Stossel will cheerlead it every step of the way. To be stupid is to become a tax donkey.
Solutions Are Obvious, I love the idea but there isn’t enough opium in the world to make that dream come true.
Better yet, most of these students should be encouraged to go to a trade school and learn a useful skill that pays well and won’t cost an arm and leg. Or do as much as possible at a more affordable community college.
And another bill to hand over more American jobs to foreigners. https://www.congress.gov/bill/116th-congress/senate-bill/386
Just imagine if we had something like a FREE MARKET that would address all of these issues WITHOUT the need for government intervention.
“The Brookings Institution found that 28% of students don’t even know they have a loan.”
Not one of those 28% should be taking part in post-secondary education. That is a frightening percentage!
Holy Shit!
Another plan!
Exciting times with all these great ideas.