Student loans suck! I know that, you know that, my grandma’s dog knows that. They weigh down your 20s, 30s and maybe even your 40s.
What if we could avoid this nauseating rigamarole? What if we could pay them off just before we have kids and move on with life? What if you could pay them off in your 20s and be done with it?
Well a solution to this problem already exists and it’s available in Mexico, Colombia, Chile, Peru and the United States through private organizations, as well as directly through universities like Northeastern, Purdue and the University of Utah. It’s called an income share agreement (ISA).
The idea is simple: You go to university and you don’t pay anything while you attend. Once you graduate and get a job, you pay a fixed portion of your income for a fixed number of years. Then you’re done.
The income portion you pay and the length of the agreement are decided before you graduate so you can plan for the cost and you don’t need to deal with a floating interest rate.
The biggest benefit that ISAs provide is that they have a fixed end date — after a short number of years nobody will contact you about paying back your loans. You’d be left to your vices and everyone would leave you alone.
And there’s an unspoken benefit of the program. It increases a university’s incentive to educate students with skills and knowledge that will get them employed quickly and with good jobs. Because if it doesn’t, it won’t get back its investment in the student.
So what’s the catch? ISAs are expensive to start up and to work best they have to be managed by the university whose students they benefit.
They’re expensive to start because any new financial program requires the organization that is offering them to take on some level of default risk, so organizations have their cost in risk, not in actual money spent.
The program needs to be managed by the benefitting university so that a feedback mechanism exists. If a bank was handling the program, there wouldn’t be an ongoing assessment of the university’s occupational training, meaning that the university wouldn’t know if it was pumping out low quality graduates or graduates who go on to get good jobs.
Another issue is that they will not work for everyone. Some students would end up paying more with an ISA than they would with traditional student loan programs while people in programs with low-wage premiums probably wouldn’t be offered the opportunity to participate.
But just because ISAs wouldn’t work for everyone doesn’t mean they shouldn’t be tried. A program like this could help UBC attract students from more disadvantaged backgrounds or help students that would otherwise drop out because of the cost of tuition.
If UBC started a pilot program where it offered this program to 30 domestic undergrad students from applied sciences, it would cost roughly $874,000 over four years including a two per cent increase in tuition every year — that’s around 0.0437 per cent of UBC’s annual budget.
An ISA is an opportunity for UBC to shake things up a bit, get off its laurels, plan for the future of education and actively help students in dire need of financial assistance.
Zubair Hirji is a first-year student in the Masters of Food and Resource Economics Program. He is also the former treasurer of The Ubyssey.