Bet On A Boiler

A recent article “More College Students Selling Stock—in Themselves” (The Wall Street Journal, 5 August 2015) highlights the terrible outcomes that fall onto students shoulders when universities are run for the benefit of self instead of students. This, from institutions that claim to serve the greater good, and create citizens that can function in and contribute to society.

High tuition prices lead some students to take loans against future earnings to complete their college degree. A $15,000 loan could end up costing as much as $60,000. That is equivalent to taking out a $15,000 bank loan at an interest rate of 26 percent for 15 years. See anything wrong with that? Undergraduates could easily be taken advantage of because they are not financially literate and do not understand contracts.

These “income-share” agreements are yet another trick to finance high-cost education while ignoring methods to improve processes and reduce costs. University leaders are taking the easy way out of their cost problem by continuing to shift it onto students and lenders. Income-share is a bad deal for students and it will deepen their student debt problems.

Remarkably, some higher education leaders think this alternative form of financing an education is a good idea. The president of Purdue University, Mitch Daniels, wants to start an “income-share” program called “Bet on a Boiler” (see also “Purdue Students as Investments? Here’s How It Might Work.” The name, at least, is transparent in its intent – gambling. It is a bet that the student can get a job, make enough money to pay off the loan, and maintain continuous employment for a decade or more – in a future where jobs are likely to be less plentiful as computers/software, robots, etc., automate more human activities.

Gambling with students (“players”), whether they consent to it or not, is wrong. And, the “house,” of course, always wins, as “income-share” debt cannot be discharged in bankruptcy. Boilers who can’t pay-up will get boiled by their creditor.

Universities, especially, should not spend time and resources creating or endorsing novel ways to finance a product whose cost is high as a result of decades of mismanagement. They should instead own their cost problem and reduce costs at the source. Processes define the costs. Most processes are terrible (batch-and-queue) and, as a result, are high cost. Improve the process (flow) and reduce costs.

Read my low-cost, student-friendly plan to make college more affordable.

Update: 26 March 2021. The nonsense idea of income-sharing agreement remains with us today. See “A Novel Way to Finance School May Penalize Students from H.B.C.U.s, Study Finds” (Source: by Stacy Cowley, The New York Times, 25 Match 2021).

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