Mike Davies
May 2016

Purdue University Offers Upperclassmen New Income Share Agreement

As of this fall, Purdue University will be offering a new financial aid program for upperclassmen to help pay for college. This new plan is one of the only income­-share agreements offered in a U.S. college. An income-­share agreement offers the student funds to go to college up front. Unlike regular federal student loans, the repayment plans attached to these plans are based on a percentage of pledged income, meaning that the student has already agreed to a percent of estimated income before they even graduate.

Rather than taking out student loans, students enrolling in the Back a Boiler program have access to funds directly through the school. This program functions as a way to finance degree. On the Purdue University’s website, the income-­share agreement is described as “A new innovative way to fund a Purdue education”.

As described on the Introduction page of the Purdue University website, “It’s not a loan. It’s not a grant. It’s something new and different, providing freedom and flexibility in funding your education as a Boilermaker. It’s the Back A Boiler Income Share Agreement (ISA), managed by the Purdue Research Foundation”. This webpage also offers a comparison tool to compare the costs of loans to the estimated amount of funds that need to be paid back through this program.

The requirements to receive this aid are clear­-cut. First, the student must be a U.S. Citizen or a Permanent Resident. Second, the student must be at least 18 years or older at the time of signing the contract. Another requirement that must be met is that the student must be enrolled full­time. Finally, the student must have clear goals about what their projected income is going to be when they graduate.

Similarly to income-­based loan repayment plans, the amount that the borrower is expected to repay is based on a fixed percentage rate of projected income. Unlike student loans, the Back a Boiler does not accumulated interest rates.

For most students, enrolling in the Back a Boiler program is not going to substitute all federal student loans, it is a way to supplement federal financial aid for those who need extra coverage. In other words, this program does not reduce the number of loans disbursed from federal financial aid that the student has accepted.

This type of funding is projected to help reduce the U.S. student loan debt. However, there are some major drawbacks to enrolling in this program. The biggest issue with this sort of plan is that the graduate may not make enough money to supply their pledge they made in the contract. With a continuously wavering job market, prospects are uncertain. Another major concern with using these funds is that they have less leeway for paying them back, as private student loans tend to be.

Federal student loans also have the option to be repaid monthly if the borrower signs up for an income-­based repayment plan. Another benefit of taking out federal student loans is that there are programs such as the Public Service Debt Forgiveness program, which serve to help public service workers have their debts forgiven after a certain number of years. Since this program is new, the outcome for students is still uncertain about whether or not it actually helps alleviate a borrower’s student loan debt.

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Mike Davies

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