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Purdue seeks partner for financial aid alternative

August 9, 2015

Purdue University's research foundation is seeking a partner to establish and manage an alternative way for students to receive financial aid without incurring burdensome debt.

University President Mitch Daniels said income share agreements are a no-debt, low-risk option that can keep the cost of attending Purdue within the reach of all qualified students.

"I've just been struck that this is a true debt-free financial aid," Purdue President Mitch Daniels told the Journal & Courier of Lafayette. "And as I say, it's a way of working through college after college, and that it might be a useful addition to a portfolio of (financial aid) options."

Under the plan, a student draws from an investment pool to get money to pay for tuition and agrees to repay with a portion of the student's future income over a fixed period of time. Rather than accrue interest, payments adjust with the graduate's income.

Daniels hinted at the announcement during testimony in March before a congressional panel on the Higher Education Act. He worked with Rep. Todd Young, R-Indiana, to develop the Investing in Student Success Act, a bill introduced last month that would ensure protection for students engaged in such an agreement.

Under the bill, students would have to make payments only if they earn more than $18,000 a year. Payments can't exceed 15 percent of income for 15-year contracts or 7.5 percent for 30-year contracts. Investors must disclose to students how their monthly payments would compare to a loan for the same amount of money and length of time.

"It's a concern that people could be taken advantage of if the appropriate regulatory framework is not in place," said Beth Akers, a Brookings Institution fellow who focuses on higher education finance.

Akers wrote in a 2014 research paper that income shares "are not broadly used in the United States." She said she was unaware of any other university inviting a firm to invest in students.

Daniels said there are a significant number of companies already formed to invest in such partnerships.

"So we're pretty certain that we will hear fairly quickly from a number of folks, because a lot of them have been ready and able for some time," he said.

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