WEST LAFAYETTE, Ind. — They say college is supposed to be the best four years of your life. But paying for it could be a burden for years to come.
Right now, nearly 45 million Americans have student loans, and the total student loan debt in the U.S. is nearly $1.5 trillion.
According to the Federal Reserve Bank of New York, nearly 10% of that debt is delinquent.
“There’s a lot of people facing 20 years of student debt, and I don’t want to be paying stuff off for that long,” said recent Purdue graduate Charlotte Herbert.
For her first three years, Herbert relied on student loans to fund her education. However, before her senior year, she got a letter about a new Purdue program offering her a chance to finish school without taking out another loan.
“After probably about a month of looking at it, digging into it and thinking about it, I decided it was going to be a better option for my senior year,” Herbert said.
Herbert signed up for what’s called an “income share agreement,” also known as an “ISA.” Investors would pay for her last year of school, and in exchange they would get a stock in her future earnings.
“There is no interest, there is no danger of what you owe exploding in the background,” Herbert said
With an ISA, there’s no set number that Herbert owes. Instead, she agreed to pay a percentage of her income for a set number of months, in her case, 10% for 104 months. If she ended up earning a lot she’d pay back more money. But the ISA guarantees that if she struggles, she wouldn’t be on the hook for thousands of dollars that keep growing with interest.
“So the risk shifts entirely to the investor,” said Purdue President Mitch Daniels. “If things don’t work out well for the student, the amount they owe goes down.”
Daniels made Purdue the first major research university to offer an ISA by launching the “Back a Boiler” fund in 2016.
It’s essentially like an investment portfolio filled with hundreds of students from dozens of majors. Some students will do well, and others not so much. But combined, the fund is expected to grow.
“Nobody’s going to get really wealthy the way this is set up,” Daniels said. “But you might get a reasonable return, and in Purdue’s case, we’d put the money back into the next set.”
Besides Purdue’s own foundation, other foundations and even individual investors have bought into the fund, which has now invested nearly $14 million in more than 850 students.
“We’ll keep looking for ways to tweak and improve it, but the experience with the first several hundred students is a very positive one, and it was designed for them in mind,” Daniels said.
After graduation, Herbert got a job as a technical writer for an engineering firm in West Lafayette. She’s paying roughly $300 a month for her ISA.
While she feels the cost of college is still too high, she says an ISA is good way to limit student loan debt.
“I think it is a Band-Aid, but I think it’s a good one,” Herbert said.