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The Investing in Student Success Act – A Dangerous Idea

A new measure proposed by Sen. Marco Rubio (R-Fla.) calls for employers to help fund higher education through so-called income share agreements.

Under these agreements, as discussed in The Investing in Student Success Act, the employer would fund someone’s education in exchange for a percentage of the employee’s income for a set period of time after graduation.

It all stems from an idea put forth by the economist Milton Friedman about 60 years ago – at a time when jobs were plentiful, industrial expansion was in full swing, and the world was a happy place. The idea was for investors to give students money for school in exchange for a percentage of their income for a set period of time after graduation.

Such income share agreements have long been used by employers who send their employees to graduate school in exchange for repayment through a defined period of post-degree employment. Friends of mine who work for some of the largest corporations in the nation count it as a perk of the job, and get their MBA on the company’s dime.

But for undergraduate work? I don’t see it happening for a few reasons.

An undergraduate takes at least four years to complete, with many college students taking longer to get their diploma. During that time the student goes from major to major, trying various courses of study before settling on a single (or dual) major.

Finding an employer to take a risk on an 18 year-old with no clue as to what they want to do for the rest of his or her professional life would likely be difficult if not impossible in all but a few situations. Those who do engage in such education funding would likely be large companies that demand a specific skill set.

Think science, engineering and accounting. Forget about the English and political science majors – I don’t see a major employer going out of pocket for those kids.

Smaller employers wouldn’t likely have the deep pockets to fund the best and brightest, nor would they risk their money on students who don’t pursue a course of study that results in anything but an immediately marketable skill.

Anyone else will be left to fend for themselves.

Kids with lower grades in high school or on standardized tests, those who choose to pursue careers in arts or humanities, and students with an eye towards working with a small company or (heaven forbid!) going into business on their own will find themselves at the mercy of the student loan lenders.

Those lenders, understanding that the overall risk of default is higher when you’re dealing solely with those who do not have a job lined up four years ahead of schedule, will increase the rates they charge for student loans.

That will serve to increase the payments on student loans for those who have them.

This seems to be exactly what Washington is looking to accomplish. It’s presumed that investors would vary the percentage of income they are asking for depending on the school and major chosen. Students would thereby be given a signal that a particular school or course of study is deemed more worthy by an employer, and would alert those students about the fields in demand.

What school would continue to offer English as a major, knowing that deep pocketed employers would never cover the cost of the program?

How would lesser schools and community colleges, places where those not at the top of the class go for an education (and, potentially, transfers to better schools down the road), remain in business?

On its face, The Investing in Student Success Act is a clever idea. But dig just a little bit and you’ll see it for what it is. Nothing more than a way to increase the chasm between the haves and the have nots.

For more about The Investing In Student Success Act of 2014, check out these articles:

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By |April 17th, 2014|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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