Purdue University debuts innovative student-loan alternative

From IEDC:

“It’s not a loan,” exclaims the Purdue Research Foundation’s Back a Boiler program. Instead, students enrolled in the program agree to pay the university a percentage of their future earnings over a fixed time period.

The program debuted for this school year, and about 100 students have enrolled. Some private lenders have experimented with income-share agreements, but Purdue is the first U.S. university to adopt it (New York Times). Back a Boiler was championed by Purdue President and former Indiana Governor Mitch Daniels (under whose tenure the public-private Indiana Economic Development Corporation was created). The Indianapolis Star provides more detail:

The college sets the repayment amount based on the anticipated earnings of a student’s area of study, with the goal of not exceeding 10 percent of a graduate’s income. As opposed, to the only other option some students face – a private loan where interest can start accruing immediately. If a student is unsuccessful, or doesn’t earn what they anticipated, monthly payments under “Back-a-Boiler” would go down.

Some have questioned whether the program is a good deal for students, arguing it’s “a trade-off between the safety of having payments tied to income, and the risk of a student repaying more if they earn a higher salary.” Also, the program could become insolvent if only low-earning graduates enroll, but the risk in the scenario is shouldered by the program’s investors rather than the students.

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