A glimmer of a better idea appeared in this dark picture. Income participation agreements, under which a student enters into contracts to pay a fixed percentage of his or her income for an agreed number years after conclusion, provide a constructive complement to current government credit programs and may be the only option for students and families with low credit scores and additional financial needs. ISAs are not a new idea or not. Milton Friedman proposed it more than half a century ago and there is now a market for them in Colombia, Mexico, Chile and other Latin American countries. «It`s part of the concept of `risk sharing` and the idea that colleges should be on the bait, [which] is becoming popular in the federal debate,» Smith said. «Risk sharing is a concept that is supported in a bipartisan way.» Smith noted that ISAs, supported by banks or traditional, investor-backed, «have no connection» and are «even more transactional.» Funding relationships directly between investors and students lack value that can be added when schools participate and share responsibility for student outcomes. Republican Senators Marco Rubio and Todd Young recently proposed legislation that would designate a federal regulator and impose certain consumer protection rules on ISAs to qualify for a safe haven or protect against certain consumer protection actions. Legislation would require ISA providers to indicate the percentage of income, duration of payment, maximum payments and terms of early termination. Finally, the terms of a similar loan should be submitted to potential ISA beneficiaries.
«My fear is that students, especially low-income first-generation students, will end up paying more for their training than they would have if they had traditionally borrowed,» said Mark Becker, president of Georgia State University. «The reality is that investors invest to make money; it is not an altruistic undertaking. The most remarkable thing about Purdue`s model is the inverse relationship between expected earnings and percentage of revenue. In other words, Purdue`s ISAs require students who potentially have a well-paid career to share less of their future income than students entering low-paying sectors. There is a great curiosity for the concept, and even politicians and academics skeptical of ISAs are curious to know what will happen to this experience. Daniels says Purdue will not hesitate to share his findings: «We are a public university; we like to do research and make it available. At the same time, more and more investors are beginning to see students as a promising asset class. Christopher Ricciardi is managing partner of FlowPoint Capital Partners, a New York investment firm; He is known as the «grandfather of LCOs» for his role in popularizing guaranteed bonds, the tools that contributed to the 2008 financial crisis. Last fall, FlowPoint revealed edly, an online marketplace that compares schools that sell «shares» of their students` ISAs with accredited investors. Ricciardi estimates that the ISA market could replace the entire private loan market for $10 billion, and then a few, which will amount to at least $20 billion. Although the nature of the ISA protects the participant, early users like Purdue have installed security measures. An easy-to-use computer simulator offers quick and transparent comparisons with different public and private credit options. No participating company pays anything or until annual income exceeds $20,000 in the first six months after closing.
For graduates who have started their careers fast, a 250 percent cap on the dollar that bought their training limits the total reimbursement. One of the few issues that now enjoys broad cross-party support is that ISAs are subject to legislation pending in Congress that would set limits if