Investing in Students to Manage Rising Tuition

(from the PBS Newshour) Alarmed by soaring student debt and rising default rates, some colleges and universities are charting new strategies for helping students manage education costs. In one novel approach, Purdue University has begun offering students grants in exchange for paying the university back a percentage of their future earnings. Purdue President Mitch Daniels calls the funding model an income share agreement, and he says it shifts the financial risk from the student to the investor — in this case, the university. "The investor is banking on the fact that the student is going to do well," he said. "And they'll get their money back and maybe a little more."

Purdue's Research Foundation, which is funding all 160 students who applied this year, sponsored workshops throughout the year to educate students about the process. Each agreement is different, with each element of it — funding amount, income-percentage payback amount, number of years the student has to pay it back — based on the university's projections of the student's earning potential. For example, one woman who is studying digital design engineering has accepted $30,000 from Purdue in exchange for sharing 5 percent of her future earnings over 10 years. She said it's a better deal than the $80,000 or so she currently has in Sallie Mae loans — excluding interest.

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