The Student Loan Conundrum for Higher Education: Can Income Sharing Provide Relief?

As many of us in the realm of Higher Education know intimately, the investment of state dollars in our public institutions has been on the decline for decades. Our student to staff/faculty ratios have been on the rise, our salaries have been stagnant, and our opportunity for innovative programming has often found itself in the hands of generous donors. So, what has been the solution to this evolution? Higher tuition. And who does this impact? Our students and our communities.

As an entity, we know and understand that education is the key to breaking the cycle of poverty on an individual scale. But at a systems level, we also can see that the divestment of funding for state higher education is most greatly impacting our lower-income and middle-income students¹ . Students are then forced to take out larger amounts of student loans that don’t “hit home” until graduation day or even in times when they take breaks from school: decreasing their ability to re-enroll. The burden of that debt lies in their ability to find a well-paying job directly out of their undergraduate programs where the amount of tuition is not based on their chosen fields expected entry-level income. This conundrum is forcing us, on a national scale, to think creatively around solutions.

With a new White House administration coming this month, there is a swirl of discourse around student loans and cancelling debt for millions of Americans. The rhetoric toggles between wanting borrowers to stop having to choose between rent and student loan payments, to the balance of stimulating the economy to allow for purchases of homes and cars by those stifled with these monthly loan payments, to not wanting to raise taxes to pay for relief for those who may not financially need it most. The questions always end in wondering who first-in-line should be and what that relief should look like. The reality is, this is new territory as tuition has risen so quickly in the last few decades while wages have largely remained stagnant².

For those of us working within Higher Education, or companies working alongside colleges/universities and with students, what can our role be in creative change? How can we work together to think about experiential learning and finding ways to financially support students during their degree completion? We are beginning to see a shift of placing more value on career readiness and financial support at universities toward their career centers, but this has been a space that has been historically underfunded. In thinking through that, are there ways, as institutions, we can begin to better advocate for state and federal funding to decrease the burden of tuition dollars on students and align those with career opportunities?³

One such idea is an Income Sharing Agreement (ISA). These opportunities are popping up across the nation to fill the gap for students paying tuition. Higher Education institutions (e.g. Northeastern University, Colorado Mountain College, and The University of Utah)  and industry leaders alike are re-thinking supporting student success. In relying on the academic preparation and specific career pathways, colleges and universities and invested companies are – literally - banking on the future income earning of their students/interns. Although this is still a new and emerging trend in the area of financing educational pursuits, it’s an interesting option. Because the payback is set up as a percentage of future income for a set amount of time, this could be a compelling opportunity, especially for those students who may be looking to enter low-paying fields or who are more unsure of the career pathway ahead of them.⁴  

This idea, however, is not going to be the best option, or even an option to consider for many students, depending on the terms of the agreement. As Dave Ramsey shares in his opinion piece⁵, Income Sharing Agreements could end in students paying much more than what they borrowed in the first place. This isn’t in stark contrast with a traditional student loan - when including interest accrued over the years - but something students need to be aware of and to balance. The pandemic and the incoming administration will both have impacts on how data will inform these opportunities in the coming months. For now, how can you, as an industry professional or career services administrator start to think creatively to support students in financing their education to support our greater educational attainment and economy?

¹https://scholarshipamerica.org/blog/the-far-reaching-impact-of-the-student-debt-crisis/ - see here for more details on borrower impact

²https://www.forbes.com/sites/camilomaldonado/2018/07/24/price-of-college-increasing-almost-8-times-faster-than-wages/?sh=2b3389a166c1 

³https://www.meratas.com/blog/top-9-schools-that-offer-an-income-share-agreement

⁴https://www.edsurge.com/news/2020-12-09-more-colleges-are-offering-income-share-agreements-are-students-buying-in

⁵https://www.daveramsey.com/blog/income-share-agreements