A Better Path Forward: Why Colleges and Students Should Share Outcomes Risk

Apr 09, 2019


When more people can afford to earn college degrees, we all win. So why do students alone shoulder the risks of financing their educations?

People who have bachelor’s degrees contribute $381,000 more in taxes over their lifetimes than they receive in government benefits. College-educated citizens are less likely to become unemployed and less likely to live in poverty. People with college degrees are also more likely to vote, volunteer, give money to charity, and even donate blood than people who have not graduated from college.

Moreover, the social benefits of higher education continue into the next generation. Children of college graduates are more prepared to enter the school system as young children and more likely to go to college themselves, creating a virtuous cycle for society.

Equally compelling, the benefits that flow from increased access to higher education are likely to grow as our economy changes. Since the Great Recession of 2008, more than 95% of the jobs created in the recovery have gone to people with at least some college education. Workers with a bachelor’s degree now make up a greater share of the workforce than people with a high school diploma or less, and they now earn 57% of all wages. The recession accelerated a change in the composition of the American economy that strongly favors higher-skilled workers.

Improving access to higher education and increasing the number of people with postsecondary degrees provides clear benefits to society. As the economy continues to evolve, the gaps between educational haves and have-nots are only likely to grow. In spite of these benefits, America still asks college students to shoulder all the risk of financing education. The traditional model requires students to take out loans just as they are starting their careers, burdening them with debt just when they most need to be flexible, mobile and ready for anything. Getting a college education is not only likely to improve that student’s career prospects and lifetime earning potential. That college degree is also statistically likely to make him or her a more productive, healthier, more philanthropic, and more engaged member of society. Why should he or she take all the upfront risk of making that brighter future a reality?

At Leif, we believe it is time to change the traditional student-financing model. It is time to change the way we finance education to make it more accessible to more students. As institutions look for ways to improve student access, we believe Income Share Agreements are a compelling tool to facilitate this.

Income Share Agreements are a powerful way for colleges to share the upfront risk of financing an education with students who most need support. Either through endowment money, philanthropic partners, or institutional capital, the college handles some of the upfront cost while the student agrees to pay back a portion of their income after graduation, for a set number of years, up to a predetermined payment cap. The graduate must land a job earning a base level of income before he or she is required to repay the Income Share Agreement. This arrangement is a real and powerful way to show students that the school also has skin in the game: the school succeeds only when its graduates succeed.

Students who go to colleges and universities are not just improving their own lives, they are providing an enormous benefit to society as a whole. Institutions should be compelled to offer their students new and better financing options, because when higher education becomes more accessible to more students, everyone benefits.