Students in the United States owe an estimated $1.48 billion in college loans. This shouldn’t surprise anybody. The United States government has been handing out absurdly cheap loans for college students for ages now. With this influx of cheap cash colleges have realized that they can charge more. In response the government has doled out more cheap cash and the cycle has continued to its current state of a ton of outstanding debt that can’t be repaid.
Colleges, realizing that the student loan bubble is going to burst, have been looking for alternative methods to continue charging their current rates when cheap cash is no longer available to students. Some colleges are experimenting with taking a percentage of students’ future earnings:
MONTPELIER, Vt. (AP) — As more students balk at the debt loads they face after graduation, some colleges are offering an alternative: We’ll pay your tuition if you offer us a percentage of your future salary.
Norwich University announced Tuesday that it will become the latest school to offer this type of contract, known as an income share agreement. Norwich’s program is starting out on a small scale, mainly for students who do not have access to other types of loans or those who are taking longer than the traditional eight semesters to finish their degree.
On the upside, students pursuing degrees that traditionally result in low paying jobs, such as interpretive underwater basket weaving, have an opportunity to obtain a cheap college education. On the other side of the coin though, students pursuing degrees that traditionally result in high paying jobs, such as computer science, get a less appealing deal.
I don’t foresee this strategy working out for colleges. It relies on students actually obtaining jobs after graduating, which can never be guaranteed. Moreover, in order for colleges to continuing charging their current prices, this strategy requires most students to get high paying jobs after graduating.