Replace Student Loans With ISAs

The latest Freakonomics Podcast episode was talking about - The $1.5 Trillion Question: How to Fix Student-Loan Debt? (Ep. 377)

Why is the cost of tuition so high in the U.S.? They say that, "from 2000 to 2016, the average annual cost of college more than doubled, from around $15,000 a year to nearly $32,000" and that, "Roughly 45 million people have student-loan debt, totaling $1.5 trillion"

Here in China for example, Peking University costs about 30,000 RMB ($4,300) per year. Significantly cheaper. Maybe more people should consider getting an education from a Chinese university. Especially since a number of them are ranked quite high in the world rankings.

The episode discusses different solutions to this tuition problem, but I like the ISA option the best.

An Income Sharing Agreement (ISA), is a financial system where a school or company would pay for the cost of education in exchange for the student to give a percentage of their future income for a fixed number of years.

For example, Purdue University has started this program. The percentage is different for different majors - "a chemical engineer from Purdue University would pay about two and a half percent of income for maybe six or seven years. Somebody who studied let’s say psychology, it might be four or five percent of income, whatever that income is."

I didn't know, but the episode highlights some startups that have also adopted a similar model. For example, Lamda offers free education in web development in exchange for a portion of your future income.

I love this! I hope more schools start following this example, giving prospective students more options to finance their education.