Another non-solution: Income Share Agreements

Thursday, December 18, 2014

At AEDI, we always welcome debate and discussion about student loans and, in particular, about alternatives to today’s system of debt-dependent financial aid. We are often discouraged, however, by the relatively narrow scope of possibilities considered, and by the very limited chance that what passes for ‘innovation’ today will significantly improve student debt’s most serious effects on the financial security and economic mobility of Americans. A recent piece by Beth Akers of the Brookings Institution, whose presentation on a panel for the Senate Economic Mobility Caucus AEDI Assistant Director Melinda Lewis had the opportunity to moderate last month, reflects this ‘maybe a bit better, but not enough’ strain of policy reform. The Income Share Agreements (ISAs) that Akers recommends we look at are, admittedly, a bit better than how student loans are mostly structured today; by conditioning repayment agreements on one’s actual earnings, students should be protected from catastrophic payment strain collapse following graduation, and, over time, these arrangements could lead to greater institutional transparency and accountability, as the public would have better information about graduates’ earnings at comparable institutions. According to the metrics we have outlined for financial aid, however—does the policy restore higher education’s role as an arbiter of equity and a fulcrum of social mobility—Income Share Agreements are barely an improvement. Borrowers would still have to divert their post-college income to debt repayment, while those financing college from asset stores would not. This repayment would likely still prevent significant asset accumulation, as we have found in other analysis. And, then, ISAs would still reduce the payoff of education for some students, while compromising the financial foundations—maybe not as dramatically, but likely still as perniciously—of many young adults. Our greatest concern with proposals like these is not their actual effects, however, but what they represent in missed opportunities to have the substantive conversations—and generate the meaningful alternatives—that our student financial aid system so desperately needs. We are glad to be part of these discussions where they are surfacing, and hope that our student debt analyses can help to focus our collective attention on the most important questions reforms should address.

 
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New Book Released

Today’s student loan system is in place because of a political compromise, and growing discontent with student debt may signal that this arrangement has run its course. While there are resources and organizations in place to help those struggling with debt, the time has come to consider a new direction for financial aid, William Elliott III and Melinda Lewis argue in “Student Debt: A Reference Handbook.”

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