A University’s Role in Solving Student Debt: Where there is a will, there is a way.
Amina Spahic, NLC Tampa Bay
In my senior year of college, I remember sitting with my classmates discussing prospective jobs and what our near future would hold. One classmate was going to work at an advertising company in Miami and seemed very excited about it then she said, “And I’m only $35,000 in debt.” I was shocked at how casually she said that when another classmate interjected and said he had upwards of $40,000 and will likely have more because he was about to enroll in graduate school. Another out-of-state student had almost twice that.
I had none.
I’ve reflected on that conversation many times, and now I realize if you’re not extremely wealthy or extremely poor and hopefully making excellent grades, you may not have a choice other than to go into debt. Due to my household income, I was able to receive federal subsidies in the form of Pell Grants, coupled with merit-based scholarships, a job, and living with my parents, I was able to complete my undergraduate degree debt free. I was very privileged to have that kind of help and I only learned to fully appreciate it now that I no longer am below that lower threshold and must take out loans for graduate school.
This is the great failure of our higher education system: the middle class must mortgage their lives to remain middle class. According to the The Postsecondary National Policy Institute, 61 percent of undergraduate students take out student loans to complete their Bachelor’s degree. We will be forced to make extreme sacrifices in the name of paying off your loans, as discussed in the previous piece.
It should not be this way.
Our government has not done enough to lift the burden of student debt. While there will need to be a policy solution, some universities and colleges now at least recognize that it is in their best interests to help students graduate and secure jobs which will help them pay off any debts. And this realization has led to a several innovative work-arounds that may help ease students financial burdens.
Loan Free Aid Packages
In 2001, Princeton University was the first U.S. university to offer loan-free aid packages to all students, moving instead to providing students with grants rather than adding to students’ debt. Princeton’s financial aid covers 100 percent of tuition, room and board for undergraduate students whose families earn up to $65,000, and most students with family incomes up to $161,000 are paying no tuition at all. But unlike most colleges and universities, Princeton has an endowment of $23.8 billion, making these types of loan-free options feasible for the university. Other top tier schools have similar endowments and are able to offer generous aid packages without loans, but only a handful of schools offer such aid to all of their incoming undergraduates rather than on a need basis.
In reality, loan-free aid options like those offered at Princeton, open doors to economically-disadvantaged students, who previously felt access to private schools were out of reach. Twenty-two percent of Princeton’s 2021 class are Pell Grant recipients, with family incomes less than $50,000 a year. By actively recruiting high-performing students and offering generous aid packages, Princeton has been able to increase the socio-economic diversity of their student body.
Other universities are trying to emulate Princeton’s model to implement loan-free options for students, but without large endowments, such as the nearly $24 billion that Princeton holds, this type of program is hard for them to afford.
Loan-free aid options also gives way to another growing trend of moving towards need-based recruitment of students rather than merit-based. In short, there are plenty of smart, well-performing kids who also can’t afford a college education. So, how do we find them? The answer is, again, to target Pell Grant recipients.
Income Share Agreements
In 1955, Milton Friedman suggested the idea of income share agreements to offset higher education costs for students by utilizing an investor-model. Income share agreements are similar to angel investments where early investments in a business or ideas are paid back in future profits. In ISA, an investor — whether through private investors or the university’s endowment — would essentially buy into the success of the student with a return through an agreed upon percentage of the student’s future earnings.
Purdue University’s Back a Boiler ISA program is one of the biggest success ISA stories. Since 2016, nearly 500 students have enrolled in the program. Purdue has cut student borrowing by 23 percent in that short time. Purdue’s ISA will be repaid based on a percentage of the individual’s earning over a set period of time. Since it is not a loan, there is no interest to ISAs making it often a less expensive option.
Critics of ISAs say that while they are not technically a “loan,” they have an awful lot in common with them. Recipients of ISAs often pay back more than they borrowed — Purdue’s ISA, for example, can require repayment up to 2.5 times what was initially borrowed. Similarly to student loans, non repayment can mean entering default for those who have utilized IRAs.
In an ideal ISA scenario, a university would cover a student’s tuition, take a vested interest in the performance and success of the student, and receive the money back once the student graduates and enters full-time employment. But with so much uncertainty post graduation, this could cause many participants in the program to be saddled with heavy repayment schedules that, similar to student loans, prohibit them from personal growth such as owning a home, starting a family, etc. ISAs are still new in the higher education world and it will take time to fully understand the implications of them on students.
What else can be done?
One of the best strategies colleges and universities can employ to assist students in staying out of debt is to lower the overall cost of attendance in innovative ways. Many colleges are utilizing corporate partnerships and sponsorships to achieve that goal. Purdue has recently partnered with Amazon to provide lower cost books and college supplies through co-branded, online stores and local pick-up locations. Purdue estimated they would save over $6 million a year for their students.
Many schools rely on large endowments and alumni donations to supplement research and expansion of programs. As the millennial generation continues to be strangled by student loan debt, their ability to give back to their alma mater is greatly decreased. It will take this kind of forward thinking and innovative efforts by universities to end the student loan crisis. Or, as my colleague pointed out upon reading this piece over, corporations could just pay substantial taxes to make higher education available for many more people. You can expect any partnership with a corporation to mean they are still getting some profit and bragging rights for their efforts.
While researching various universities and what initiatives they have taken, the one common factor was a progressive leader who decided there needed to be a focus on helping students and they recognized they could play a role. Someone decided they had to use their power to do something, which put pressure on other schools to do the same. There is no clear way forward and it shouldn’t fall on a handful of people to decide to try and help. Why are some schools accepting more need-based students and others aren’t? Why are some using risky and experimental programs such as ISA’s? Why are all of us burdened to talk and write about solutions when education is a right and the debt associated is a problem we didn’t make but inherit?
Amina Spahic is a community organizer based in Tampa, Florida.
Amina was born into the political climate of the Bosnian War in 1992. After resettling to Austria, she and her family found Tampa to call home in 2001. Since then, she has advocated passionately for equal opportunities and rights for minorities, racial equality and diversity.
Amina has served as the Diplomacy Intern for the Ministry of Foreign Affairs in Ankara, Turkey where she worked with a think tank of peers and presented an analysis about the future of Turkish foreign policy. She is the recipient of the USF Director’s Award, History of Achievement Award and the Business Ethics Initiative Scholarship and a 2016 Nominee for the El-Hibri Foundation Young Leader Peace Award. Currently, she works closely with Emgage USA, a non-profit working to empower Muslim Americans in the political process, and sits on the board of the New Leaders Council Tampa Bay and Organize Florida where she works to advance progressive policies and train the future leaders of Florida.
