A fascinating experiment in higher education is taking place in the USA. It all centres on Purdue University, located in deepest Indiana. Presided over by former Governor Mitch Daniels, they’ve devised a system for funding students through universities without private or government loans. The programme is called Back a Boiler (based on ‘Boilermaker’, the nickname given to Purdue students), and the device it uses is the Income-Sharing Agreement (ISA).
In the ISA, Purdue Research Council provides money towards the student’s tuition, in return for receiving a percentage of the student’s post-graduate income annually for a set number of years. The numbers vary based on expected return; Computer Science graduates would pay 2.57% of pre-tax income over 7.3 years for $10,000. An English graduate would pay 4.52% for 9.7 years. Notably, more than 60 courses are represented in Purdue ISA users – the differing rates clearly aren’t prohibitive to debt-averse students, though they may make future students consider more carefully which degree will serve them best. Purdue caps possible repayment rates at 15%, and it’s noteworthy that average repayment rates on ISAs are lower than for most federal government student loans.
The programme hasn’t been in place long enough for it to be clear how large the returns Purdue Research Council makes on ISAs will be. Further, ISAs are theoretically dischargeable in the event of bankruptcy, which student loans aren’t. Other questions around the legal mechanism for ensuring repayment, and the potential demotivating effect on increased earnings, also exist, but the latter could be cleared up easily in a national programme and the latter by taking the time for data to emerge.
If it does transpire to be successful, it could be revolutionary. It could let students leave University with far less or no debt. It could see students paying notably less for their university experience overall. It could provide an interesting and valuable new investment, boosting hard-working savers and pensioners. It could provide greater choice all round. All this, too, without requiring the taxpayer to stump up for uncertain gains.
There’s no reason, should it work, that it shouldn’t be an option for students in the UK. With reasonable legal limits on how many years and the maximum repayment rate, and providers competing with one another to find students up for ISAs, they would provide a viable alternative to just taking out student loans. In giving more options to students, reducing personal debt, expanding investment options for savers and likely saving the taxpayer money, it has the potential to be a win for everyone. It would also, notably, expand the role of the private sector in investing in our future.
We may be getting ahead of ourselves. We’ve yet to see if it works in Purdue, after all. Nonetheless, those interested in innovative approaches to funding student through higher education, from Washington to London and beyond, should watch with interest a small University in deepest Indiana.