— Original publication date: May 4, 2016

Students, parents and even now unsuspecting Grandparents are getting crushed by the US Government’s Predatory Lending of Federal Student Loans (Title IV). While some estimate the Department of Education pocketed $60 billion on the backs of students’ loans in 2016, students and their co-signing families continue to get hounded by legions of telemarketing demon dialers, who threaten to garnish wages and take elderly Grandparents’ Social Security checks.

OH…and now Free College in states like New York? “Whoa…so I had to pay through the nose for my degree for the next 30 years, and these folks get theirs for free?! Bernie this isn’t FAIR!!”

“My university needs more cash now!” — Most Presidents

 ISAs are the fastest pathway I have found to:

  • Getting off of Title IV altogether
  • Addressing 90/10
  • Solving gainful employment
  • Lowering use of Title IV
  • Helping institutions monetize discounts/affordability grants
  • Helps students get re enrolled via possible repackaging loans including Loan Forgiveness
  • Offer a student-friendly new source of tuition support
  • Include employers in the higher education process
  • All at no cost to the institution
  • Highest-value form of ISAs are those that we implement in combination with other aid, and not as a substitute for student loans

Where is Milton Friedman when we need him?

Finally, a university President has had the Leadership chops empowered by an astute Private Equity group backing a savvy entrepreneur to provide…for once in my lifetime…a viable alternative to the Title IV Federal Student Loan program which FAVORS THE STUDENT!

Mitch Daniels has been one of my heroes since he won as Governor of Indiana, where he began improving all aspects of life for his State including not only balancing the budget but passing laws that the State MUST ALWAYS have a balanced budget. This man screams LEADERSHIP. Wow…imagine the rank-and-file’s shock and awe when he became President of Purdue University?

 “We continue to look for every way that we could send our graduates out with lower debt obligations,” he explained.

OK…so these are highly customized for each individual school, and a tad complicated to understand. But our group has arranged for the hundreds-of-millions required from investors to fund institutions who desire to help their students while creating new-found cash for their school…at no cost.

Allow me to give you a quick overview of Income Sharing Agreements—ISAs:

  • Student loans are now at the $1.3-$1.4 trillion level—have doubled in the last eight years
  • ISAs are an emerging alternative to student loans whereby students agree to share income from future earnings for a defined number of years in exchange for tuition financing. Originally proposed by Milton Friedman in 1955 as an equity purchase in a student’s future earnings power.
  • Purdue, under Mitch Daniels’s leadership, is doing pioneering program
  • ISAs could be a profitable and socially useful institutional investment addressing a major need
  • Schools maintain starting salary statistics by program of study and ISAs will be structured with different salary percentages for different programs—e.g., lower for pharmacy than for elementary education
  • Term can be standardized to 10 years, or varied
  • Deferral during periods of unemployment, graduate studies, etc.
  • Limited to seniors, juniors and grads: much reduced graduation risk versus freshmen or sophomores

Advantages from the student’s point of view

  • Generally, flexibility and reduced risk
  • No interest or fees accruing from day one
  • After fixed term, obligation is satisfied–whether fully paid back or not
  • Dischargeable in bankruptcy
  • Protective provisions: no payments required if salary is too low; cap on payments for high salaries
  • Obligation deferred when appropriate
  • Obligations may be subsidized by schools as tuition discounts

Advantages from schools’ point of view

  • Flexible financing alternative for students
  • Partial monetization of tuition discounts now required by the market (>40%)

Advantages from investor’s point of view

  • Diversified credit pools that can be structured for attractive yields, after defaults and fees, partially subsidized by school tuition discounts
  • Default rates should be no higher than long-term student loan rates: 15%
  • Risk reduction through underwriting (unlike student loans)
  • Addresses an attractive demographic to which other products can be sold
  • What we bring to the table
  • Excellent network of post-secondary school connections
  • Seasoned student loan servicing partner
  • Significant financial, venture capital and education industry experience

Contact me if you would like to discuss this as an investment opportunity or for your institution at (760) 801-5021 or email mkc@mclifford.com | We have hundreds of millions in financing for qualified institutions.

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