With student loan balances at $1.6 trillion, a new financial instrument is attracting attention (“New Kind of Student Loan Gains Major Support. Is There a Downside?” The New York Times, Dec. 24). Students who sign a legally binding document called an income-sharing agreement pay a certain percentage of their earnings over a fixed period. If they make more than they owe, they pay more. If they make less, they pay less.
If income-share agreements catch on, I believe they have the potential to make students think what they should major in. Critics will argue that the value of a bachelor’s degree should not be based on its marketability alone. Otherwise, colleges will become merely trade schools. I understand that view, but critics need a reality check. Students have to be able to pay their bills after graduation. They can’t live on passion alone.
The days when few people graduated from college is over. With so many degree holders, the ability to hit the ground running after graduation is essential for sheer survival.
(To post a comment, click on the title of this blog.)
4 Replies to “Income-share agreements will change college majors”
You know, over the years I have nagged you about writing a book of collected pieces, or some other topic. You have always said you needed a point, a draw, a spark, something around which you could focus. The hook of the book. Don’t you have it now, in this topic, your hook? You obviously feel strongly about it. It’s an important topic. Make your case for vocational ed, a punchy, well-researched, tightly constructed book that lays out your position, supported with facts. Make its focus about income, money and wealth. Think about it.
dkhatt: Thanks for the suggestion, but there’s nothing I could write that hasn’t already been said. There are so many books out there that break no new ground. If I find something new, I would be interested in writing a book.
For many years, I’ve advocated replacing college student loans with income-share agreements between the student and the federal govt, with the student’s post-graduation payments added to the student’s federal income tax and reported/paid each year when the student files his/her 1040.
Under this approach, the federal govt — instead of insuring bank loans — would be paying the loan $ to the college or the student up front and would then collecting $ from the student over the student’s entire life or perhaps for X years. This approach would, in effect, approach the Dem proposals for free college tuition for everyone paid for by the feds with the mitigating feature that those who benefited from the free college tuition would end up paying a little more in federal income taxes over their lifetime than those who did not take advantage of the federal benefit.
The huge advantages of any income-share-agreement approach are” 1) it’s progressive-taxation aspect — those who are better able to afford to pay for a college education will pay more than those who are less able to afford to pay for a college education + 2) it’s implicit encouragement to college graduates to pursue lower-paying careers — often govt jobs such as teaching or military service rather than law, medicine, or finance.
Labor Lawyer: But isn’t the federal government already involved in making loans for college? Your proposal is interesting, but maybe what is needed is recognition that college is not for everyone, nor is it necessarily needed today for a well-paying job.