Income Sharing Arrangements
A recent government study indicated the following correlation: for every dollar that federal financial aid provided to college students, tuition rose 65 cents. Which basically means that taxpayers en masse paid for the ability of higher education vendors to build fancy dormitories, compensate their professors at above-average rates and add administrative positions at a disproportionate pace.
Put another way, the net cost to students did not become cheaper, regardless of which combination of numbers one puts together. Current student debt levels exceeding $1.1 trillion, with default rates in the teens, are the bottom line.
Do there exist well-reasoned re-examinations of the cost structure of colleges. Yes, but they are confined to the readership of publications coming from a few think tanks. Higher education still manages, despite lamentably low graduation rates, to successfully use the defensive mantra of “you [the critics] do not understand.”
As a consequence, most providers of money to prospective collegians focus their efforts on the funding side of the issue without becoming activist on the issue of the cost of higher education. It is as if nobody cared about the cost of the car as long as the buyer could borrow the necessary money.
Leaving aside the historical role of outside college scholarship providers, there are now prospective additional entrants, who seem to have both an investor and non-profit mentality. What they do is provide funds to a college student for a stipulated portion of the net cost of college under an arrangement whereby the student repays the funding through a portion (4-5%) of his future earnings for a set number of years. (If there is sufficient financial clout and the energy to spend hours with bureaucratic college officials, the funders may actually come to a reasonably accurate figure on the true net cost of higher education, without in any way changing the obtuse overall nature of college accounting).
The student’s repayment does not go into the fund provider’s pocket but is recycled into funding for additional students. There may not be an attempt to connect inflation rates in either individual income or college tuition, which creates the risk of mismatches, most likely going against the individual. The out from the formula is that the repayment percentage does not change and once the set number of years has been met, the student no longer owes anything, regardless of how much money has been repaid. This means that if the student cannot pay back in a given year, the deficiency is not added to the unpaid balance of the debt.
This particular student funding gambit is labeled an “Income Sharing Arrangement” (ISA). Because it is outside the federal and state loan modus operandi, it may have a dual appeal to funders who are not impressed by the role of government in general and who like the incentive alignment of an ISA. Of course, the ISA is not completely devoid of government influence as it is affected by tax policies relevant to everything it does, whether it be investing or the involvement of non-profit entities or the unique position of higher education with respect to gift tax rules. Undoubtedly there are legal issues related to ISAs as well, which have yet to be decided upon by regulatory bodies or courts.
More importantly, an ISA could be a low-cost replacement for the government’s ultra-expensive Parent Plus Loan option, and much cheaper than conventional consumer credit.
The optics of an ISA seem to have the potential to be unfortunate: wealthy, mostly white benefactors seemingly being repaid (even if not to their own pockets) by college graduates from lesser income minority families. Such an arrangement seems likely to feed opponents of education reform, who constantly put forth the straw man of privatization (and more than a passing reference to racial divisions) to support their bogus case.
My own world in terms of funding collegians has had these characteristics: Hispanic, ESL, First Generation, low income—and more than a few documentation challenges. When I printed out the 15-page description of 13th Avenue Funding, an early non-profit ISA effort, I had a hard time imagining anybody I know—parents, students, school officials—being on the same page (pun intended). There is already enough of a bias against the indefinable legalese of lengthy written documents. There is already a screaming need for more guidance counseling, as in human interaction, not website print-outs.
Perhaps the target audience is those of whatever socioeconomic background who have the characteristics of (1) experience with formal financial commitments, (2) income that is too high for FAFSA-based financial aid but too low to afford the target school of their offspring, and (3) a prior college graduate somewhere in the family tree.
A more specific target audience is students from the handful of urban schools which have moved their standards of academic rigor to a level that matches well with of selective colleges. Said students can benefit at the college level from the money and the support services provided in the ISA approach.
Elsewhere, it is debatable whether the combination of ISA funding and services is relevant to students who have suffered from the generally abysmal academic preparation of most urban high schools in the country, which disproportionately affects urban minority students.
Still, If incentives are properly and consistently aligned, as mentioned earlier, and high quality services are provided, there will be some broadening of the attraction of the ISA. As is true in most cases of policy evaluation, the ISA idea must be looked at in comparison with …….. fill in the blank with other financial alternatives, each with its own combination of positives and negatives.
In any event, it would be incrementally helpful if every ISA dollar was matched ten to one by funding of well-designed college-relevant reform efforts that would be more than band-aids, maybe at least tourniquets anyway, for the broken legs of the current higher education system.
Pending such an effort (which some might say is slowly taking place, through the efforts of multiple change agents and the Obama administration), if an ISA can help students who otherwise could not get to and graduate from college, it is hard to deny its usefulness. The comments above should be regarded as cautionary issues, not an attack on the ISA concept.
Selective Schools
Why do many high achieving minority students not apply to selective schools?
*They are afraid of the unknown. This is a totally rational state of mind, not to be confused with adults refusing to try sushi but more akin to those who believe that somebody with a different style of clothing or speech or set of beliefs is automatically to be either feared or shunned. One response on many campuses is the formation of First Generation clubs, which, among other attributes, can offer the prospective collegian a welcoming hug. This approach, in a way, is also pertinent to the “I can’t be what I can’t see” dilemma.
But wait, the issue here is not applying in the first place. Back to square one.
*Perhaps there is an implicit recognition by the student that his high school achievements are not to be construed as adequate academic preparation for truly selective colleges. This of course leads to the issue of education quality in the nation’s schools in general, with special emphasis on urban high schools. Handling this live grenade requires a series of long essays, not a few words in a blog.
*They are simply unaware that they could be accepted by a selective college. Incredible as it may seem, it is not unusual for an Hispanic graduating from a predominantly Hispanic high school to hear a message that suggests he only can go to the local two-year school or to the world of work. Even a graduate of the community college may not have been apprised of the different four-year alternatives. (Note that if he or she is a skilled athlete or musician or a star participant in important school clubs, they probably have a greater degree of awareness brought to them by those who value their specific non-academic talent.)
*Inadequate documentation to make the student eligible for conventional (government-based, federal or state) financial aid is right up there with cost per se in dissuading a young person from applying to that expensive selective school. The rebuttal which points out that said school can offer a direct scholarship of substantial size is relevant, but the amount, even when really generous, may not be sufficient in the absence of any other aid. Left for another day is the philosophical debate between “a lot for a few versus a little for many” in terms of societal resources intended to support individual students and their college aspirations. Even within the minority community, there are those who advocate financing the equivalent of “free rides” to college for a defined number of projected leaders, as opposed to spreading those dollars over as many students as possible.
*The short bungee cord of a tight-knit family may be restricting the college search to a maximum of perhaps 100 miles from home, if that. Probably the only way this impediment (which many students would not even think of as a true negative) is solved is if the offspring of friends of the family have gone outside the mileage boundary and lived to tell their story of academic and career success.
*Diversity, ah yes, the magical word, not ever to be construed in a negative way. The automatic interpretation in the Latino world is the proportion of Latino students to those of other ethnicities. However, half of Hispanic students (yes, I am using the terms interchangeably) go to local two-year colleges, where they can easily stay connected to their high school friends. Diversity of the total enrollment is misleading at best.
Another large percentage are attending an HSI, an Hispanic Serving Institution, which by definition must have at least a 25% Latino student body. In reality, the percentage is usually much higher. Again, a type of diversity which is open to interpretation. None of this commentary should in any way imply that students are doing anything wrong in gravitating to their comfort zone, but the issue of applying to selective colleges typically circles back to whether those seeking diversity can envision themselves in classes where they are a small minority.
Collectively, the descriptors above cry out for the availability of better prepared, trained, empathetic, readily accessible (for free) guidance counselors, which ideally would be located at high schools, but could be found elsewhere. The issues pertinent to applying to college are all addressable, capability of being put in a framework that is understandable by the prospective college student, who can then choose to apply based on a fuller appreciation of all the factors involved.