Colleges address rising tuition, student loan defaults

As students face increasing tuition costs and increased debt loads, some colleges are offering an alternative, The Associated Press reported.

Norwich University announced Tuesday it will become the latest school to pay students’ tuition for a percentage of their future salary. Norwich’s program will initially make the offer to students who do not have access to other types of loans or those taking longer than the traditional eight semesters to finish their degree.

“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 Lauren Wobby, the school’s chief financial officer and treasurer.

Traditional loans require students to pay down the principal and interest until nothing is left. But income share agreements have students pay back a percentage of their salary for a set period. Those who favor this approach say it gives colleges greater incentive to help students find higher-paying jobs after they graduate because a higher salary means the school will recoup its investment in a shorter term, the AP reported.

For students, the agreement is seen as less risky, especially if they end up in a lower-paying job or struggle to find work after graduation. Students aren’t required to pay anything back if they are unemployed or earning below a certain threshold.

But some worry the approach could lead to discrimination against those who choose lower-paying professions.

“If income share agreement providers aren’t careful, they can definitely see unintended consequences in discriminatory terms towards students,” said Clare McCann, deputy director for education policy at the New America Foundation. “This is one of the biggest differences between income share agreements and federal student loans. Federal loans offer the same terms to all borrowers.”

The AP reported economist Milton Friedman first proposed income share agreements in 1955, and Yale University briefly experimented with the idea in the 1970s. Technical training programs, such as computer coding boot camps, have used this type of funding for the past decade, mainly because participants do not have access to federal student loans.