Thursday, October 1, 2015

Paying for College by Industry Backed Income Share Agreements

Your business needs skilled workers to expand and you know that the problem will become even more dire over the next five years. Your options are limited because colleges are not graduating enough people with those particular skills to fill vacant positions thereby raising the labor costs beyond what would be termed reasonable. Industry backed income share agreements  (ISA) to pay for college might be one solution to filling skill gaps while still lowering labor costs.

Milton Friedman discussed the dangers of over reliance on government in education in his 1955 essay The Role of Government in Education. He brought forward the idea that government shouldn't be solely responsible for education and private interests can solve some of their own problems. We see this in decades of ballooning government debt and chronic student loan problems. Problems are getting worse.

That doesn't mean we should simply neglect paying for college or not help college students get a higher degree as an investment in knowledge is also an investment in national interest. However, it does mean the government and employers can come up with better plans, better rates, and more affordable practices. There is room for collaboration of industry stakeholders to resolve long-standing student loan issues.

In those areas of high industry labor demand,the option of either pooling together to create  income sharing agreements or doing so on a business-employee basis is possible. The terms of agreement can be set by the actual student loan investor. It could include working for a U.S. based company or staying at an employer for a specified period of time to pay back the loan.

Interest rates are a big detractor for students who want to go to college. Student loan investments can be backed by company (s) that ensure rates stay low by reducing default risk through backing and hedging. Lower interest rates and high job prospects act as an incentive to students who are seeking a career. This in turn encourages labor market adjustments that create a more efficient economy.

Students who want to go into high demand areas could find themselves with lower interest rates and potential jobs upon graduation if industry steps up and offers its own version of a student loan program. The specific details would be in flux as stakeholders debate possibilities. Generally, industry stakeholders can create the terms and invest monies to ensure they are creating qualified individuals.

 It is possible that lower default rates based on needed skills and higher pay, job placement, lower interest rates, faster filling of chronically open positions, lessening of government debt, industry influence on colleges, and reduction of long-term labor costs are some of the benefits of a industry backed share agreements. Offering industry alternatives to college financing may put additional pressure on colleges to focus on programs that can be appropriately funded and have higher employment prospects upon graduation.

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