Monday, February 20, 2017

Purdue in Forbes: What's up with Income Sharing Agreements?



Purdue's Income Sharing Agreement Solution To The Student Debt Crisis
Jon Hartley, Forbes Contributor

As the new school year commences, many college students will finance their skyrocketing tuition through student debt, adding on to the existing $1.3 trillion in total student loans outstanding in the United States. Over 100 students entering their third and fourth years at Purdue University are taking an alternative path, by pledging a portion (or percent) of their future salaries as part of a new Income Sharing Agreement (ISA) initiative known as "Back-A-Boiler." The average Purdue student enrolled will receive $13,789 in funding with the promise to pay it back as a small fraction of their income over 6 to 10 years after graduation. A brainchild of Milton Friedman now championed by former Indiana Governor and current Purdue President Mitch Daniels, ISAs provide an alternative financing option for Purdue students that puts less pressure on students to meet high-interest payments while facing uncertain job prospects. After having spoken to President Daniels and students enrolling in Back-A-Boiler like Purdue management major Amy Wroblewski who is entering a $13,514 contract to fund her junior year, I am confident Purdue’s Income Sharing funding mechanism should assuage the chief concerns of ISA critics and provide a template for other schools across the country to replicate.

Over 60 different majors at Purdue from liberal arts majors to computer engineering majors receive ISA backing

First, no student major is ineligible for ISA funding from Purdue (which is backed by Purdue's research foundation as well as an external investor) despite the liberal belief that only computer science or engineering majors could receive funding under such a framework. The 60 different majors at Purdue receiving Back-A-Boiler ISA funding include but are not limited to various liberal arts majors, business majors and science majors. Indeed, those with higher paying job prospects face lower repayment rates. For instance, a computer science senior will pay 2.57% of post-grad pre-tax income over 7.3 years for $10,000 of tuition paid through an ISA while a liberal arts senior will pay 4.52% of their post-grad pre-tax income over 9.7 years for the same amount. Purdue’s "Back-A-Boiler" program dispels the myth that liberal arts majors could never get funded under an ISA system. Those in majors with lower earning power post-graduation are simply given a longer pay back runway along with a higher payback rate that remains within reason.

Gradually students will be incentivized to pursue majors with better post-college prospects

Second, if scaled to the national level, such differences in ISA repayment rates over time would slowly incentivize students to study majors with better post-college prospects improving the efficiency of our education system in preparing students for higher income earning jobs. Sen. Marco Rubio, who has previously introduced legislation to create a better national legal framework for ISAs, made a related argument when in the fourth Republican primary debate he suggested that “we need more welders and less philosophers,” insinuating that structural education reform should focus more on vocational training career paths with more stable post-college career outcomes. ISAs would create better incentives for students to pursue more stable career outcomes rather than saddle many college graduates with debt and weak job prospects.

Compared to federal student loans, ISAs which offer post-collegiate risk diversification can hardly be called "usury"

Finally, such repayment rates at Purdue are relatively low compared to federal student loans that they could never honestly be called “usury” or “indentured servitude." Purdue prevents even the possibility of so-called “usury” by capping any potential ISA at 15% of total post-grad pre-tax income. Recent analysis of government data finds that the average 2015 college graduate with student debt will have to pay back slightly more than $35,000, many with little or no grace period, meaning interest payments are due immediately upon graduation unlike ISAs which only require payments contingent on a post-college income stream. Given this fact, how can anyone possibly continue to call ISAs “usury” while not apply the same label to federal student loans? For these reasons, ISAs could be near ready to be brought to national level and could play an integral part in education reform. The possibility of a recession occurring in the next few years is a real one. Academic economists like Lisa Kahn at the Yale School of Management have found that recessions can have a seriously negative long-run impact on college students who graduate in Recession years and ISAs offer students an opportunity to insure against recession risk. Sallie Mae student loans demand fixed interest payments upon graduation regardless of macroeconomic conditions. That being said, ISAs alone will not quell rising tuition borne by guaranteed government debt that gives Universities every incentive to increase tuition without any accountability for student outcomes. A recent study by researchers at the Federal Reserve Bank of New York confirms this phenomenon. Education reform plans that impose risk sharing on colleges that accept government backed Sallie Mae loans need to be implemented to solve the national tuition problem. In addition, ISAs may still need a better legal framework in some states to ensure that investors are protected from students refusing to pay their agreed upon income shares. The Purdue "Back-A-Boiler" program in time should also provide some evidence that a legal framework for ISAs exists, assuming student default rates are low. In the meantime, ISAs in some states can give students some immediate financial relief through diversifying the risk associated with their post-college income. For over 100 students at Purdue, they already have.

You can read the original article here


Monday, February 13, 2017

We need your help!

The MASFAA Communications and Electronic Initiatives Committee is hard at work building a new website for the association! As we begin to map everything out, we would like input from YOU regarding what you like about the current website, what you dislike, what you would like to see more of, etc.

Please take a few moments to complete the survey below about the current MASFAA website, and what you would like to see on the new website.


https://www.surveymonkey.com/r/M6X3HLC


 Your feedback is very important to us!

Thank you!
MASFAA Communications and Electronic Initiatives Committee

Monday, February 6, 2017

Firsthand accounts of how awesome Summer Institute and the Leadership Symposium are!


MASFAA Summer Institute gave me an experience beyond my expectations. It was like a Financial Aid 101 Intensive and I LOVED every minute of it. My goals were to meet as many people as possible, collect as many business cards as I could and to leave without any of my own. I wanted to learn and generate as many relationships as possible AND I did! I also unexpectedly received the Haywood Legacy Scholarship as a result of my goals to learn, connect and have fun which paid for my attendance at the 2016 Fall MASFAA Conference. I was speechless. The Summer Institute expanded my understanding of the Financial Aid world on the local, state and national levels. My mind was blown to realize the various ways you can have an impact on the future of financial aid through your participation in our local, state and national financial aid associations.

The things I learned…

I learned that though there are concretes and certain non-negotiables within the realm of financial aid, there are also so many ways to come up with the same result to best serve our students. I learned that depending on the school and population that processes and procedures may be different from another school.

I learned that I can always reach out to a colleague from another institution because we’re not in competition, we’re in partnership for the greater good of financial aid as a whole.

How much fun I had…

I am truly thankful for the thoughtful evening events that made me step out and enjoy the company of my peers after a long day of learning. I had so much fun not only experiencing this new place, but new experiences with people I would’ve otherwise never had such an experience with. It was like experiencing the best parts of college all over again; learning, growth and friendships.

People I met/relationships made…

I have at least 30 business cards from people I’ve emailed at least once. When events come up, I reach out to them to see if they’ll be there so we can catch up with one another. The great thing is…now if I’m anywhere in the Midwest other than Michigan, I have a colleague in the area I can reach out to.

Credentials I earned…

I walked away with the knowledge to achieve all 12 credentials and managed to complete two more! Now I have 14 credentials and a year ago, I didn’t even know there were such a thing.

 This post was submitted by Felicia Drayton, Senior Financial Aid Administrator, University of Michigan 



I had the pleasure of attending the MASFAA Leadership Symposium this past year at Illinois State. From start to finish, it was a great event. This year was the first time that the leadership symposium and summer institute began simultaneously, which allowed those on both tracks to get to know one another and interact. (That will continue this year, too!) I learned so much from the faculty at the LS, from mission development to getting a seat at the table and making sure the voice of the financial aid office is heard on campus. Each day was filled with intense learning (followed by a lot of fun in the evening!). Every state in our region was represented, as well as every sector, which I was really thankful for since it provided insight into issues that I don’t always have to think about. Our group really bonded during the week and I now have a cadre of highly skilled friends and professionals whom I can call on when I need advice or a sounding board. Having a great group to learn from and with was the icing on the cake that was the MASFAA leadership symposium! I’m excited to return to the symposium this year as a summer institute faculty member, and I hope to see MASFAA take over the Illinois State campus this summer!

This post was submitted by Aesha Williams, Assistant Director, Illinois Institute of Technology

 More information will be available soon for the 2017 Summer Institute and Leadership Symposium! Please consider participating!