This piece was co-authored with Dr. Gary K. Michelson, surgeon, inventor, and founder of the Michelson 20MM Foundation.
With Inauguration Day just two months away, the Trump Administration is busy determining how to staff agencies and move forward with its policy agenda. One item that should remain at the top of the list: the cost of college.Debt is the number one concern of parents and students applying to college, according to the Princeton Review, and a recent survey of likely voters found that 82% agree that education beyond high school is a necessity, but 85% think it is getting much harder to afford.
During the campaign, President-elect Donald Trump proposed capping student loan repayments at 12.5% of the borrower’s annual income, and forgiving loan balances after 15 years of dutiful repayment. While capping student loan payments makes a real difference to students and their families, this proposal doesn’t go far enough. By 2020, 65% of jobs in the U.S. will demand a postsecondary education and training beyond high school, so we need to make higher education a reality for more Americans.
Transforming America’s workforce requires innovative approaches to higher education financing that reflect the needs of today’s students and our economy. President-elect Trump should preserve promising ideas from the Obama Administration, while also pursuing additional innovative ways to combat student debt and make higher education more affordable.
First things first, though – we need to recognize that a four-year program is not the only way students can get the skills and knowledge they need to succeed in today’s economy. Yes, an education beyond high school is necessary to thrive in today’s job market, but we need a multitude of different pathways to a great first job – not just a bachelor’s degree.
The Department of Education developed an experimental program that will offer up to $5 million in Pell Grants to students who enroll in non-traditional programs including coding bootcamps and trade or certificate programs. In August 2016, the DOE announced the eight organizations that will make up the Educational Quality through Innovative Partnerships (EQUIP) pilot experiment. Each organization will partner with an accredited college or university and third-party quality assurance partners will monitor student success in order to track the effectiveness of each program.
If EQUIP proves successful, it will offer an additional way to help low-income students thrive in today’s economy. They can get the financial support and coaching they need to earn an advanced certificate relatively quickly that will help them garner substantial employment. Another option is employer-pay bootcamp models, like Revature, where coding training is provided for free in return for a commitment to work for the company for a period of time. These models typically result in not only the first job (working for Revature, staffed to the client company), but also the second job when students are hired by the client.
Another innovative approach to higher education financing is in the early stages, but has the potential to open up higher education to students without the financial resources to afford net tuition. Income Share Agreements (ISAs) allow students to leverage future earnings to pay for their education. But rather than taking out loans, investors finance the cost of tuition upfront and students agree to pay a set percentage of the income they earn after they graduate, for a specific number of years.
Purdue University is the first large U.S. higher education institution to experiment with ISAs. Last spring, juniors and seniors were invited to sign up for the program and the University is hoping to create a model that can ultimately be scaled at other higher education institutions. The University will use funds from the Purdue Research Foundation and work with Vemo Education, a company that develops and deploys income-based financing programs, to manage its program. ISAs give students access to financing for higher education without the fear that they will be unable to make future loan payments. More importantly, they align the interests of students and universities—both benefit when students graduate and secure a good job. In time, universities with ISAs and related financing products will be incentivized to encourage students to pursue programs of study that produce a strong return on investment (and perhaps to shut down programs that do not).
While there is a lot of excitement about opening federal student aid to non-traditional programs, it’s imperative that these programs are closely monitored to make sure they deliver results for students. With ISAs, the terms must be reasonable, repayment must be capped, and students need to understand exactly what they are committing to. It’s also important to recognize that these options will not be right for every student, but they expand the number of options for funding higher education so more students can get the skills they need to succeed.
As a philanthropist and private equity investor, we are pursuing ways to make these new approaches to financing higher education available to more students. The Michelson 20MM Foundation invests in leading edge entrepreneurs, technologies, models, and initiatives with the potential to improve postsecondary access, affordability, and efficacy. University Ventures connects colleges and universities with private capital to develop innovative programs that work to enhance student outcomes and make higher education more equitable around the world.
Political solutions to the high cost of higher education are important, and there are steps the Trump Administration can take to reduce the burden of student debt. But we must ensure that political solutions do not crowd out private sector innovations that can help more students get high-ROI training, skills, and education they need to attain high-value jobs. Exploring new approaches to higher education financing isn’t just the right thing to do, it’s necessary for our country to remain relevant and competitive. There is so much untapped talent out there – let’s not waste it.
Ryan Craig is Managing Director at University Ventures and the author of College Disrupted: The Great Unbundling of Higher Education.