WISE Summit: Fixing the Broken Student Loan Debt Crisis

We are burdening our next generation with nearly insurmountable debt, just because they are doing what has been drilled into their heads since they could listen — GO TO COLLEGE.

And it's true, statistics show that having a secondary education vastly improves your chances of getting a good, well-paying job. But at what cost?

Today’s $1.6T student loan debt illustrates the scale of the issue that students are facing. And while some people may have the resources and are financially stable enough to pursue an education purely based on their interests and passions, most students – as high as 91% of them – study to get a job and sustain themselves and their families. 

Given this context, it’s important to explore options to pay for education to draw down this debt crisis and make schools more accountable for students’ success post graduation. That is why I will be speaking about Income Share Agreements (ISAs) at the WISE Summit next week in Qatar on the panel “Income share agreements: Should students sell a share of future salaries to fund their higher education?”.

The root of the problem is that there is a misalignment between the schools, students, and their future employers. Students oftentimes receive a long and expensive education that does not train them to satisfy employers’ needs. One way to fix this is to align the financial interest of the school with that of the student, and there is a perfect tool to achieve this: ISAs.

ISAs could be the solution needed to solve this issue and give students who are serious about bettering their job prospects a higher chance of succeeding after graduation.

ISAs not only protect against income volatility, but they also take away part of the burden of the risk of students’ educational investment. Students simply pay a fraction of their salary only if they find a job and if their salary is above a set threshold. And whether their salary is larger or smaller, it’s the same percentage rate, making it affordable for everyone.

ISAs are also a good way of pushing higher education institutions to demonstrate interest in student’s professional success and take measures to ensure that. It has been shown that people pursue higher education in order to find a job, but less than 30% of college graduates are actually working in the field that they studied, or worse, struggle in low-paying jobs. So then what’s the point of paying so much money and going into debt for an education that does not get them into their desired outcome?

ISAs tie the success and payment of the school with the success and payment of the student. If students are not working the schools are not paid.

On the other side of the coin, schools could be tempted to invest in students who are more likely to succeed in the job market upon graduation (e.g. an engineering student vs a philosophy student). The reality is that schools should absolutely not all be about job training, and in that case, ISAs do not make sense. However, schools will be incentivized to advise students on the best career and field of study that they see for them. But what’s for sure, is that institutions are failing students who spend half a decade studying to get a career, spending a fortune for an uncertain future, should not exist.

#WISE19 #education #ISA