Income sharing agreements: a dangerous distraction

For the first time in a long time, we see momentum around a greater public investment in higher education. From presidential candidates to Congressional and state leaders, policymakers are getting behind the idea of greater funding, up to and including debt-free or tuition-free college.

On the other hand, we have proposals for Income Sharing Agreements, whereby private investors provide funding to students who in turn pay back a portion of their future income for a set period of time. ISAs are a bad idea in many respects, but their most dangerous aspect is the potential to dampen any meaningful progress toward greater public funding for higher education.

{mosads}ISAs leave a lot to be desired. Under ISAs, the higher market potential a student has to financially succeed, the greater the return on capital and profit to the investor. One only has to look at wage disparity between races and sexes to predict investor preferences. The white male majoring in STEM fields or business will attract the most willing investors and get the best payback terms, while others studying in public service fields like social worker or teaching would be out of luck.

We are at a crossroads in our nation’s discourse on the role and value of higher education and how we should fund it. Over the past 40 years, we have shifted the cost of higher education onto the student consumer. Our national policies have marched inexorably closer toward Milton Freidman’s dictum that higher education is a purely “private good” that should be paid for by the individual and ISAs are just another step down that path.

Between 1990 and 2009, state governments decreased funding for public higher education by an average of 26 percent, even as operating costs increased. As a result, public colleges and universities raised tuition and fees again and again. The rise in the price of public colleges, the low-cost market alternative, eliminates price constraints across the industry. Students and families covered the resulting increased costs with debt.

Yet it wasn’t always this way. Historically, we are a nation that has fostered the education of our citizens, including higher education, as a public good. The first thing the Pilgrims did after they took care of hearth and home was to build a college. The founding fathers believed that “an educated citizenry is a vital requisite for our survival as a free people.” In the 19th century, we were one of the first nations to create a system of compulsory education through high school and a network of publically funded, state universities. We awarded our returning veterans after WWII with college degrees, helping create the modern middle class. Johnson’s Great Society made sure anyone could afford a higher education regardless of their economic background. In the 1980s, we led the world in college attainment; since then we have dropped to twelfth place.

We did not arrive at “higher education as a purely private good” through a national dialogue or change in philosophy. We now live with the unintended consequence of years of incremental, piecemeal policy changes.

After a long drought, we may finally have the political will to return to our roots and focus on the public social and economic good of higher education. Rather than concentrate on ISAs and profiteering from the dreams and aspirations of our citizens, we should double down on our national investment in higher education and an educated workforce. Government must make public colleges more affordable; students should continue to contribute through savings and reasonable borrowed funds; and the private sector, rather than pursue ISAs and profit, can play its part with employer-funded loan repayment plans.

John Zurick is the president of SALT and executive vice president of American Student Assistance, a nonprofit with 50+ years helping millions of students make better decisions about paying for and paying back the cost of their education.