What does everyone think about ISA(Income Sharing Agreement)?

My first thought is that the schools will have to do a few things to ensure their revenues:

1. Set the cap as high as possible so that the successful graduates can not only pay their own burden but also offset the costs of the free riders, those that failed to meet earnings expectations.

2. Tailor curricula to the areas with the highest salaries, preferably with the shortest payback period. Don't bother with a philosophy department, because it'll only produce a lot of bad debt.

3. Recruit students who want to maximize wealth, not students with intellectual curiosity.

It'd introduce some distortions to higher education, but it's already pretty messed up now. For some schools that position themselves in the market as training centers anyway, it's probably appropriate given that their mission is to maximize earning potential anyway. For the elite schools more concerned with academia, research, and innovations it probably doesn't fit so well. But multiple models can coexist. Might as well try it.

 

Sounds like socialism.

 

Yup. Those who work hard in the early years of high school and earn scholarships have to pay for those who want the easy way out and get pointless liberal arts degrees.

No thanks. How about we concentrate on the sky rocketing costs of education first.

 

Sharing is caring?

 

It's a greedy business first and foremost.

 

Nothing is wrong if your the person who got free college and everything is wrong with it if your the person paying for the freeloaders.

Why should anyone have to pay for something that has no value? If you make a mistake and spend money on something of no value then you should pay for your own mistake.

It really isn't hard to understand.

 

Students are not lucky or unlucky they make choices and those choices have consequences.

 

Students who graduated from college in 2008-10 were certainly unlucky. Not everything is related to the choices you make. Sometimes **** happens that you have no control of.

 

That is life, but you are still responsible for your decisions. Life is not equal and it is not fair.

I always wanted to be an NBA player but I'm short and slow.... I think there should be a system to pay for the fact that NBA players are tall and make lots of money and I wanted to do that too but I was unlucky.

 

Insurance and public services are the socializms.

 

I've never needed to call the cops or have the fire department come over to my house for assistance, yet those damn free loaders in need get to use that service as much as they want with my tax dollars.

 

Quoted for truth...

 

Actually, it doesn't sound anything like socialism. It sounds much more like capitalism to me. The school is making an investment in the human capital of individuals. Some of those investments will pay off and deliver good returns. Other investments won't work out so great and you take a loss. The school aims to have a sufficiently successful portfolio with more good investments than bad.

On point one, the schools would know going in what the earning potential is of their graduating liberal arts majors, so they can calibrate their spending on the program and the terms of the ISA to make the cohort of such graduates profitable. Or, if they can't make the math work, they probably wouldn't offer such degrees. They can probably command less profit from those students than they can from the engineers, for example, but companies take varying profit margins for customer types as it is anyway. Assuming you can more than cover the variable costs of serving the liberal arts major segment, the engineers are still better off having them around even if margins are thinner, because it gives the school greater scale on which to spread their fixed costs.

On point two, a pricing scheme like this can address the tuition inflation problem. I see this problem as resulting from the lack of price discrimination on the part of the consumer (the student and his parents) because the value is potentially high but uncertain, and the dynamic is complicated by the infusion of third-party cash from loans that empowers people to buy more than they can afford. With an ISA, the value of the education is still uncertain, but it is tied directly to the price thereby eliminating value uncertainty as a price distortion. And, since the school will now take annuity payments instead of lump sum loans, you don't have an artificial inflation of one's ability to pay. The price is tied to your ability to pay.

That sounds to me like an argument for the ISA. If the college offers a service that has no value, why should they collect any payment? If you bought a car and the car didn't work, you'd want your money back. Likewise, if you buy an education and the education doesn't work, you want your money back. With a scheme like this, you pay what the service is worth (insofar as the value of the service is salary enhancement -- as I'd said earlier, I think this scheme is better suited to training-oriented schools and not so well suited to Ivy League schools).

The more I think about it, the better I like it. It's a product value proposition that leverages market forces to spread risks among the stakeholders in a different way. In the traditional model, universities have very limited exposure to the risks of their students failing in life. The lenders had bad debt risk, but are compensated with interest. The student, who is the least-informed party and the least able to mitigate and manage the risk, takes almost all the investment risk in this endeavor. With an ISA, lenders get out of the relationship (though I could see universities securing their loans from banks with the ISA revenue streams from students, or even securitizing them), and universities share in the risks of the investment. They probably deserve a premium in compensation for taking on risk, but with the exposure they'll probably get much more adept at mitigating the risk, which would mean better outcomes for the students.