Traditional Financing Doesn’t Work for the Average College Student

Nov 16, 2018


More than 60% of Americans think the average college student is 20 years old, according to research by the New America Foundation, and the majority believe that most students go to school full-time. Those of us who work in higher education know that the reality is completely different.

The typical college student today is actually 26 years old. Only half of all college students attend full-time. Between 70 and 80% of college students work, and a significant number of working students are working full-time jobs while they study: 40% of undergrad students and 76% of grad students work at least 30 hours a week. One in five working students aged 16 to 29 has children to support.

The typical college student, then, is a working adult who is financially responsible for himself or herself. Working full-time at the federal minimum wage only earns you $15,080 a year — not enough to pay even the average tuition at a public four-year college, let alone living expenses. For today’s students, even working full-time is unlikely to earn them enough money to cover the cost of college.

Despite all these obstacles, more students are enrolled in college today than at almost any time since 1970. Many young people today have gotten the message that college is the ticket to financial success. They are moving mountains to better themselves because at first glance the ROI of college appears clear: Statistics show the average college graduate will earn almost a million dollars more than the average person with only a high school diploma over the course of a lifetime. A closer look at the math, however, reveals a more complicated story. Depending on factors such as the student’s major, how long it takes to graduate, and inflation, taking on traditional tuition financing to go to college may not make sense, especially if you look at college completion rates.

At private or flagship public four-year schools, only 36% of students get a bachelor’s degree in four years. At non-flagship public universities, only 19% of students graduate on time. While there is an interesting study arguing that student debt can incentivize students to finish faster, how much is too much and is it really working? These students entered college with the dream of making a better future for themselves. They were ready to work hard. They did work hard. But many of them also took a risk—they took out loans to pay for school.

Many students are working full-time while going to school, worrying about making rent, and juggling coursework with a host of other responsibilities. For these hardworking students, failing to finish a degree, or taking extra time to finish, is not just a bump in the road. Under the traditional loan-based model for financing an education, it is a potential financial catastrophe that could hold them back for the rest of their lives.

Two-thirds of students at even flagship state universities colleges fail to finish on time. Taking out a loan is a gamble. To win, you have to finish your degree. If you do not complete your degree, you will still have to pay off the student loans without getting the benefit of increased wages. And for a student who is already struggling financially, that is a high risk and a huge barrier to entry.

That traditional model for financing higher education is not a great solution for working students; for older students who support themselves financially; for students who are also parents. And that means that the traditional model does not work for today’s typical college student.

We need new models that work for today’s students—for the students who populate the campuses in real life. And that is why we created Leif.

Leif is a platform that makes it easier for schools to provide students with alternative financing such as Income Share Agreements (ISAs). We recognize that it’s a lot to ask students to agree to pay off a potentially massive loan for the rest of their lives in the hopes that they’ll finish their degree on time, get a great job, and start enjoying the return on their investment. Leif helps schools offer ISAs, which cover the cost of attending partner schools. In return, students commit to pay a small percentage of their income after college, for a set number of years, until a payment cap is reached. The cap limits the risk that a student will earn “too much” and pay a lot more than they would with a standard loan. Moreover, an income-based repayment plan completely removes the risk that a student who does not earn enough will end up crippled by debt.

Offering ISAs are one way for universities and colleges to remove barriers to entry, make college less of a financial gamble for students, and help more people access the benefits of higher education.