Purdue’s Daniels Testifies About ISAs

testified today about ‘s program to offer to .  This is a repost of an article from Indystar.  The original article can be found by clicking here.

WASHINGTON – Members of Congress had multiple questions Wednesday about the income share agreements Purdue University President Mitch Daniels hopes to offer as an alternative to traditional .

Would students from disadvantaged backgrounds be able to attract the investors who will pay for their degree in exchange for a share of future income?

Why should students with income share agreements be able to discharge them by filing for bankruptcy when they can’t do that with traditional student loans?

Could the program serve as a guide to students about what degrees are most in demand in the marketplace?

“It’s refreshing to talk about some new ideas, some new solutions,” Rep. Erik Paulsen, R-Minn., told Daniels at a hearing of the Joint Economic Committee.

Sen. Dan Coats, the Indiana Republican who chairs the committee, had invited Daniels to testify about the challenges of paying for higher education and about potential alternatives.

New York Rep. Carolyn Maloney, the panel’s top-ranking Democrat, noted at the start of the hearing that student loan debt is almost twice as large as credit card debt.

Daniels, in his testimony, said schools need to be more transparent and specific with students about the costs and earning potential of the degrees they’re seeking.

He praised a new federal scorecard designed to help students compare schools but said it could mislead students unless the data are broken out at the program level.

And he backed the idea that schools should share in the financial risk if students can’t pay back their federal student loans.

“Colleges and universities should have more skin in the game,” he testified.

But Daniels spent a lot of time talking about income share agreements, in which a student contracts to pay funders a fixed percentage of future earnings for an agreed upon number of years. The main advantage is that payments wouldn’t be more than a specific portion of income, regardless of whether the graduate is unemployed or underemployed.

The Purdue Research Foundation is reviewing six proposals from potential partners to help establish and manage an program. Daniels said a decision is expected within about a month.

Although Purdue is pursuing the program regardless of support from Congress, Daniels said federal legislation would provide important protections for students and “offer clarity” for the funders.

After the hearing, Daniels met with key lawmakers with jurisdiction over a bill introduced by Reps. Todd Young, R-Ind., and Jared Polis, D-Colo., to help create the legal framework for the program.

Daniels said he sees income share agreements primarily as an alternative to private loans and to the PLUS loans available to graduate students and the parents of undergraduates. Those types of loans, he said, “deserve a disproportionate amount of the blame for the nightmarish anecdotes that generate the most public alarm.”

Although traditional student loans can’t be dismissed through bankruptcy, Daniels said income share agreements should be different because “it’s not debt. This is an equity investment.”

“If we’re really going to shift the burden and shift the risk away from the student, then we should treat it in that fashion all the way along,” he said. “It would probably strangle the plan in the cradle if we let it be subject to usury laws.”

Sen. Bill Cassidy, R-La., said he’s intrigued by the concept but wonders whether any potential backers — besides loyal alumni or philanthropists — would be willing to finance first-generation college students or those not pursuing degrees that would allow them to earn high incomes

“We’ll only know when we know,” Daniels said. “But I can imagine, in a fully developed market, these things would work themselves out in very interesting ways.”

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