College students become commodities

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College students become commodities as investors front tuition in exchange for future earnings

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by Thomas Dishaw
The innovations they come up with to keep you in debt are mind-boggling. ISAs income-share agreements are the latest financial tool branded as an alternative to students loans. Investors (corporations)  will front the cost of your college education in exchange for a percentage of your future earnings according to this Washington Post report:

In one novel alternative to private student loans, investors could front students the money to pay for college in exchange for a percentage of their future earnings. But what are the dangers to students who accept these so-called income-share agreements? Who would benefit the most?
This week, Purdue University took a step toward answering some of those questions by partnering with Vemo Education, a Reston-based financial services firm, to explore the use of income-share agreements, or ISAs, to help students pay for college.
Through its research foundation, the school plans to create ISA funds that its students can tap to pay for tuition, room and board. In return, students would pay a percentage of their earnings after graduation for a set number of years, replenishing the fund for future investments. Purdue is relying on Vemo, along with nonprofits 13th Avenue Funding and the Jain Family Institute, to flesh out the terms.
There’s nothing new about ISAs. Economist Milton Friedman floated the idea in the 1950s, and a handful of Latin American countries use the agreements. Yet they have been slow to catch on in the United States. A handful of small companies and nonprofits, including Cumulus Funding and 13th Avenue, are piloting programs or offering contracts on a limited basis, but the market is in its infancy.
Last year, Sen. Marco Rubio (R-Fla.) and Rep. Tom Petri (R-Wis.) introduced legislation to create a legal framework for ISAs that set the maximum length of a contract at 30 years, capped income at 15 percent and stated that the agreements are not loans. The bill stalled in committee but brought attention to the nascent market.
Purdue president Mitch Daniels, the former governor of Indiana, championed income-share agreements in a recent Washington Post op-ed, calling the contracts “a constructive addition to today’s government loan programs and perhaps the only option for students and families who have low credit ratings and extra financial need.”
He wrote:

From the student’s standpoint, ISAs assure a manageable payback amount, never more than the agreed portion of their incomes…Best of all, they shift the risk of career shortcomings from student to investor: If the graduate earns less than expected, it is the investors who are disappointed; if the student decides to go off to find himself in Nepal instead of working, the loss is entirely on the funding providers, who will presumably price that risk accordingly when offering their terms. This is true “debt-free” college.

Is it really? Income shares certainly don’t function like traditional debt in that there is no explicit principal balance or interest. And the repayment terms are in many ways more flexible than even the most generous of the government’s income-based repayment plans.

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