Colleges Asking for Share of Future Earnings in Lieu of Student Loans

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As more current and prospective students struggle with the idea of managing the potentially massive debt loads associated with securing an education, some colleges are exploring an alternative. Instead of student loans, the schools are offering to cover the tuition, but only if the students are willing to commit a percentage of their future salaries.

On Tuesday, according to a report by KOMO News, Norwich University announced that it would become the latest college to embrace the idea of trading tuition for a portion of the student’s future earnings.

The arrangement, known as an income share agreement, will initially be offered to students who don’t have access to other forms of funding, like student loans, or require more than eight semesters to complete their degree plan.

“Norwich University is committed to offering this new way to help pay for college in a way that aligns incentives and helps reduce financial barriers to degree completion,” said Norwich’s chief financial officer and treasurer, Lauren Wobby.

The income share agreements involve students committing a portion of their future income for a set period of time after graduation. Not only can this eliminate or limit the need for loans, but it also increases the school’s incentive to help graduates find higher paying positions after receiving their degree, making it easier for the college to recoup their costs in a shorter time frame.

Many students view the arrangements as less risky, especially if they don’t find a high paying job or struggle to find work immediately after graduating. During periods of unemployment or if the students fall below a specific earnings threshold, they aren’t required to pay anything back until they secure a reasonable job.

“Taking on the debt through a contract, where you don’t take on a debt per se but instead will repay a portion of your future income, has a certain appeal to students when the concept is fully explained to them,” said the New America Foundation’s deputy director for education policy, Clare McCann.

However, there are some concerns that students who choose professions that tend to be lower paying might not have access to the programs or will be subject to different terms than other students.

“If income share agreement providers aren’t careful, they can definitely see unintended consequences in discriminatory terms toward students,” McCann stated. “This is one of the biggest differences between income share agreements and federal student loans.”

“Federals loans offer the same terms to all borrowers.”

The terms associated with the agreements can vary, including the length of the repayment period and percentage of the student’s salary.

Since income potential can be unpredictable, there’s no guarantee how much a student will repay over the course of their agreement, but many schools do cap the amount that can be paid back, ensuring a high earning student isn’t stuck dramatically overpaying.