A publicist emailed me recently, promoting a new book by Scott MacDonald, Education Without Debt (which I might review in the future after reading the book). In the email, the serial entrepreneur Mark Cuban (who, among other things, owns the Dallas Mavericks) was quoted as saying, “We can talk about Republican and Democratic approaches to the economy, but until you fix the student debt bubble and the tuition bubble, we don’t have a chance. All this other stuff is shuffling deck-chairs on the Titanic.”
That is precisely what Income Share Agreements (ISAs) are about. Students go to an investor and say “I want to develop my human capital and my ability to provide valuable goods and services to the economy, but I need financial help.” And then the investor agrees to provide some assistance, say $80,000 over four years, in return for some “equity” in the student, say 14 percent of the student’s post-graduate earnings for eight years.
This has lots of advantages over student loans. From the student perspective, the financial risk of going to college is substantially (depending on the level of financial involvement) passed from a financially inexperienced teenager to an experienced investor. The government is removed from the process. The terms of the ISA will vary with prospects for financial success. Engineers and accountants attending top flight schools will get dramatically better terms than fine arts or sociology majors attending the College of Last Resort. Students who drop out of school or fare poorly getting a job are not burdened with a massive debt burden.
Source: The Independent Institute
This also puts someone’s skin in the game. As it stands, the student loan program doesn’t put anyone’s money at risk, except for the taxpayers. And that’s a group too diffuse to have any real say in how it’s spent.
It would be a big improvement if the college were responsible for making good on loans used to pay for majors like Deconstructed Art History Studies. When their endowments are on the line, they may wind up steering students into fields in which people can actually make a living and pay back their loans.
An ISA puts the burden on one person or group. (A tech company might fund students who major in computer science or some other field they need graduates in. Think of Jerry Pournelle’s book, Higher Education where asteroid mining companies educate promising students in the fields they need to recruit.)