No Tuition, but You Pay a Percentage of Your Income if You Find a Job

No Tuition, but You Pay a Percentage of Your Income if You Find a Job
nytimes.com

The article doesn't really have information on the Purdue system other than saying that it might cost high-earning students 250% of the price of their education. Of course, a 30-year loan at 6% will have the borrower repaying 216% of the original amount and around $24k/year so it would only cross 10% for people earning a quarter million a year (and it doesn't generally seem bad for people earning a quarter million to pay more back).

The big issue is for universities is how they would handle marriage. For federal IBR, I believe you have to file your taxes separately. That isn't a big issue in 2018 due to the Tax Cuts and Jobs Act of 2017 which meant that the tax brackets for "married filing separately" are the same as "single" up to $300,000 in individual income. However, in 2017 "married filing separately" had higher taxes starting at $76k.

The federal government has a big hole in their IBR calculations in that it doesn't consider the fact that spousal income can change what another spouse might earn. But it's the federal government and they can afford to lose a bunch of money.

How would a private university with a much more limited budget handle this? Would they be happy with someone deciding to leave the job market because they married a high-earning spouse? Would they require payments based on household income?

Likewise, the article really doesn't answer how a university is going to do this. With the Lambda school, it's easy: VC. Lambda has quite low costs (their programs aren't 4 years), they only teach high-earning fields, and they have a 2-year payoff window. It's easy for them to say that their students average $70k/year and 17% of that for two years is $23,800. Likewise, the two-year payoff period means that things like marriage and leaving the job market aren't as likely.

While universities have a bunch of money, can they essentially float tuition for a decade or two? Probably not. If they could, they could have just offered loans themselves rather than having the federal government lend to students.

Plus, while the cost of university is terrible, most students don't graduate with a mountain of debt - more like a hill of debt. $22,000 is a lot of money, but a middle-income job can tackle $22,000 in debt. That's well below the cost of the average car sold in the US. More importantly, 10% of your income would likely be quite a bit more than the regular payments on a $22,000 loan. Are universities just going to use income sharing agreements to replace grants? Will students be graduating with $22,000 in loans plus an income sharing agreement to cover what the university scholarships/grants?

Generally speaking, universities in the US price themselves as, "how much can you afford to pay?" If you are receiving need-based aid and get a merit scholarship, usually your price goes up because that merit scholarship means you can afford to pay more. Is the income sharing agreement going to mean that students can afford to pay more? "I know that you can't afford more than $X today, but this agreement ensures that you pay $X and then Y% of your income after graduation." Is that the future?

One of the things that makes education financing so difficult is that steps taken to reduce student hardship can simply increase prices. If you give every university student a $10,000/year grant, every university knows that they can raise their prices by $10,000/year. The students (and families) were paying the price before given their means. If the government gives them an extra $10,000, the university knows they can ask for it with little to no options for the student. Universities can capture most or all of programs designed to help students afford them (rather than helping the students).

so, with regards to not paying it back if they don't land a job. how long are they held to that commitment? do we also look to see if they have another means of support? five years, ten, twenty?

with regards to not paying up front, perhaps if we cross that one taboo. not every degree is worth its cost and many not worth having money risked to obtain them.

but the big reason education is expensive is because government is free with loaning the money but not putting restrictions on what colleges can charge per course hour nor what those hours encompass. treat it like medicare/medicaid where the government sets the rates per course credit and you can guarantee colleges will fall over themselves to get that government money and loans

I don't see why this is an issue at all. If the college claims that "finding the high-income person you will marry" is one of the reasons to attend that college, then they should please return to the 1950s (or earlier!). If they DON'T, then the repayment should be based on the individual's income, regardless of their spouse's income.

Does this mean that a college risks getting paid very little by a graduate who ends up becoming a stay-at-home spouse? Sure, but that's part of the risk. A 4-year college wishing to introduce such a program can always take a less-than-complete approach and still charge some minimal tuition up front (presumably in exchange for a smaller slice of "lifetime" earnings).

The agreement lasts up ton5 years. If you haven’t paid back at the end of 5 years it goes away and you owe nothing.

You can also pay upfront, but most students don’t have enough cash to do so.