When it comes to the student loan debt crisis, government-oriented reforms are not the solution; they are the problem. One free-market solution that could markedly improve higher education financing in Maine and the rest of the country is the establishment of Income Share Agreements (ISAs).
ISAs are financial agreements between students and undergraduate institutions that allow students to pay minimum tuition throughout their time in post-secondary education, but then require them to forfeit a small percentage of their income for a number of years after graduation until the debt is repaid. Many believe ISAs will eliminate student debt with burdensome interest rates, increase college affordability and reduce or eliminate the need for federal student loan programs.
Other ISA programs operate on an employee-employer relationship; an employer agrees to pay for the education of the employee, and in return, a certain percentage of the employee’s income is paid to the employer to make up for the cost of the student’s education. This works well because the ISA serves as a mutually beneficial arrangement.
Some may say that ISAs in higher education are nascent, and that may be true, but the benefits of addressing the issues of access, risk sharing, program quality, and education innovation are significant. ISAs have the potential to help decide credit eligibility, share in the risk of financing a student’s education, offer solid payment protections to students during times of hardship, and create incentives to offer students support during school and after graduation.
Another crucial benefit of ISAs is that the rate of repayment depends on the agreement signed by the student and their post-secondary institution or prospective employer. Rather than fixed payments with bloated interest rates that can hurt an individual financially, students have more say in the terms of their repayment, leading to greater financial flexibility for the student after graduation.
Others have claimed that ISAs amount to indentured servitude. I disagree with this assessment because, similar to any regular credit arrangement, ISAs are simply an agreement to get some money now in exchange for payoff at a later date, without the student having to encumber an exorbitant amount of debt.
In 2017, the average college graduate left post-secondary school with $39,400 in student loan debt, a six percent increase from 2016. The average college graduate in Maine owes $29,644, the 14th highest in the nation.
Some big government proposals would damage efforts to curb student loan debt, such as the plans offered by Sens. Bernie Sanders and Elizabeth Warren, which would increase the national debt and expand the national education bureaucracy within the U.S. Department of Education.
To help move college graduates out of debt, ISAs must be seriously considered by state and federal lawmakers. Government-oriented solutions will only exacerbate the student debt crisis. What we need are innovative, free-market solutions to responsibly handle this crisis.
