Trustworthy Challenge: College vs. Car Dealer
I’m patiently waiting. Patiently waiting for colleges and universities to finally resolve their affordability issues.
I fear, though, that without a change in our mindset. A change in our expectations. A degree will continue to cost far more than its actual worth.
We’ve done it to ourselves, really. We’ve actually allowed ourselves to be convinced that it’s appropriate and wise to take on massive amounts of debt to go to college. To get an education. An education that provides no guarantee of a good job. Or even the ability to pass an exam to get licensed.
We finance other things in our lives. Like cars and trucks. Those aren’t really all that affordable either. But, at least they come with a warranty. A promise that they’ll start. On the first try. That they’ll get us from point A to point B. For a few years anyway.
But, that’s more than we can expect from any college or university. In fact, any problem getting a job or passing a licensing exam and all blame is placed squarely on the shoulders of the graduate, the consumer. It’d be like Honda refusing to provide a warranty. Taking the position that any problem with my van must surely be my fault. That I must not be able to drive.
Come on. We wouldn’t stand for that. But yet, we’ll completely absorb all the blame when a degree doesn’t prepare us to pass a test. Or allows employers to continue to claim that graduates are not sufficiently skilled.
It’s madness. We continue to borrow. We continue to “invest.” In ourselves. In our kids. But, we have absolutely no recourse when it doesn’t work out. When we discover that the glossy brochure was nothing more than a sales pitch. Really no different than the glossy brochures at the dealership.
And, now, there’s a new marketing scheme. A new way of seemingly addressing the student loan crisis. A way colleges and universities can appear heroic. Without ever having to discuss affordability.
Enter Income Share Agreements, or ISAs. Now, colleges and universities, sometimes even private investors, will pay a portion of a student’s tuition on the condition that the student “share” a percentage of their earnings upon graduation.
It sounds like a good deal. There’s no interest. You only “share” your income if you meet minimum salary requirements. And, payments end after a set number of years — even if you haven’t fully repaid the original amount of the investment.
But, dig a little deeper, and the good deal starts to disappear. Just like the fine print on your local dealer’s ads — the devil is in the detail.
As you can imagine, each college or university will have their own basic agreement with differences in terms. But, there are different ISAs within each school. Humanities majors will be offered different terms than computer science majors. Thanks to algorithms, schools can practically individualize ISA terms. Lessening the risk on each investment. In favor of the investor. Not the student.
Additionally, the amount of the original investment is frequently limited. At an amount below the actual cost of tuition. And, some schools require maxing out other financing sources before a student becomes eligible for an ISA. Making, ISAs, perhaps, just one of several repayment obligations.
And, digging even deeper, one discovers that while ISAs are technically interest free, there’s still a “cost” to the student. Students continue paying even after the original investment is repaid in full. In fact, a student only stops paying when the repayment period ends, or when the student hits the repayment “cap.” The cap will differ, but some caps are as high as 2.5 times the amount of the original investment. While maybe not called “interest,” the end result is practically the same.
Last, but certainly not least, is the most devilish of the details. The minimum salary requirements triggering repayment.
Keep in mind, one of the biggest story lines coming out of the student loan crisis is the vast number of graduates who are underemployed. Graduates who are working jobs that don’t require a degree. And, thereby earning far less than what they thought they would be earning when they enrolled.
So, this idea of minimum salary requirements seems to get right to the heart of that issue. It’s as if colleges and universities are in fact providing a bit of a warranty. They’re getting some “skin in the game.” They’re taking a chance. Seemingly claiming to provide a great education that will lead to a well-paying job.
Up until you discover that this minimum salary requirement can be as low as $20,000.00. That’s right. Twenty. Thousand. Dollars.
Do you know who earns more than $20,000.00 a year? A full-time employee making $10.00 an hour.
That is an incredibly low bar. Many of today’s big box retailers and fast food restaurants pay their entry-level, non-degreed employees at least $10.00 an hour.
Making ISAs nothing more than a sales tactic. Nothing more than the newest “savings event” at your local dealership. Perhaps, worse. At least the dealer offers a warranty.
I have a few years yet before my kids are college-aged. Ever the optimist, I’m hoping things change by then. But, I know they won’t change unless we change the conversation. Unless we change the way we view colleges and universities.
We have to start seeing them for what they’ve become, not what they once were. Or what we want them to be. But what they are right now. And, once we’re honest about that. Perhaps then they’ll have to actually do something about affordability.