A new plan for financing college

The cost of attending college is a big issue today, with some arguing that college debt held by graduates keeps them from buying homes and other durable consumer goods. One university recently unveiled a new plan to address the rising cost of college. NC State University economist Mike Walden discusses the highlights.

“Well, this is a plan that has just been released and put into place by Purdue University, a big land-grant university in the Midwest. Now they don’t call it a loan program. Purdue is calling it an income-sharing arrangement. The way it works is that a student goes to Purdue and they don’t have enough money to pay all the tuition, and so what Purdue will do is in essence provide them those funds for their education, but then the student will sign an agreement that says based on their degree, their income that they expect to earn from their degree, they will pledge to repay that shared income over a certain number of months with a certain number of monthly payments over time after they graduate.

“Now, we do have similar programs like this both in the private sector and the public sector, but I think what’s interesting about Purdue’s program is that it’s major-specific. Everybody going to Purdue who is in this arrangement does not necessarily pay back the same amount. It’s going to be based on their major. So, for example, someone in a degree that is expected to earn that student, that graduate, a high salary will likely end up paying back more than someone who earns a degree in a major that pays a low salary.

“So it’s going to be very interesting to follow Purdue’s plan to see if students like it, to see if Purdue University likes it. We may very well see more of these around the country.”