Media villainizing an education hero who shows college tuition doesn't have to rise at 3 times the rate of inflation

If you were asked to name the most disturbing thing about colleges these days, you would likely have some serious trouble narrowing it down. 

The woke culture, the sky-high tuition, the selling of tech secrets to Mainland China, the anti-Semitism of the BDS movement, the useless degree programs, the outrageous quotas used in the admissions process...there's quite a bit with which to find fault.

But one complaint does rise to the top in both news coverage and political speechmaking: the high cost and complex challenge of student loan debt.

One might think there was nothing new to say, outside of politicians promising to pay them all off with devalued currency and tax increases, but Yahoo Finance found something new and different to highlight on April 2, in a hit piece against Purdue University and its use of Income Share Agreements.

In this article, featured on and therefore guaranteed considerable national web traffic, reporter Aarthi Swaminathan tells the story of Patricia Feldman and her son, who financed his Purdue engineering degree in part with $40,000 in Income Share Agreements. 

According to the article, because he got a terrific job upon graduation, this particular $40,000 sum resulted in a $100,000 repayment.  Understandably, the son is underwater, and the mom is furious, expressing her displeasure by firing off angry public emails to Purdue's president every week.  The folks at Yahoo Finance are clearly gleeful at the opportunity to write a hit piece about a soccer mom's vendetta against Purdue University's current president.

Purdue University is the biggest university system in Indiana and has earned high marks for cost-consciousness for years, due to an aggressive budget policy by its current president, former federal OMB director and Indiana governor Mitch Daniels.  Upon taking the helm in West Lafayette in 2013, President Daniels implemented an unprecedented tuition freeze, which is now in its eleventh year.  It would be hard to argue that anyone in America has tried harder than Mitch Daniels to hold down the cost of a college education.

Image: Mitch Daniels.  YouTube screen grab (edited).

But Yahoo Finance found someone with a gripe about ISAs — a legitimate one — and pounced on the opportunity.  Daniels has been talked about as a Republican presidential candidate for years, and even if such discussions have died down of late, his star could easily rise again on his reputation as a belt-tightener.  Such expertise may be greatly desired in the next presidential election.  Taking him out of the equation just might be tempting to some in the media who are thinking ahead to 2024.

And that brings us to the ISA, the peculiar villain in the story of the day.

As higher education has grown more and more expensive, more and more vehicles have arisen to help pay for it (and the problem will continue to get worse until Americans realize that the reverse is true as well).  Scholarships, federal grants, department and endowment awards, and student loans have all exploded in usage in recent decades, supplementing the traditional methods of student work and parental contribution.

The Income Share Agreement — the ISA — is one of the most innovative of these approaches, and, like many financial vehicles, it can be wonderful or terrible, depending on one's specific circumstances.

The ISA is a contract to make payments of a fixed percentage of post-graduation salary; it is not based on the normal interest rate approach of a normal loan at all.  The more you earn, the more you pay; the less you earn, the less you pay.

Imagine: upon graduation, one student may be unemployed for years, or be stuck in minimum wage and entry-level jobs for his first ten years out of school.  Another student may do well almost from the start, obtaining a great job and pulling in an impressive salary right away.

With the traditional student loan, the first student is likely to default, while the second will have little trouble unless his debt load is truly enormous.  And while the student may have some idea which group he'll end up in, there's no way to be sure.

The ISA approaches the problem much like a reverse insurance company.  Loan the money to all the students, assuming from the start that some will pay it back and others won't, so we may as well put all the burden for 100% of the loans on the ones who really can pay it back.  Every biomolecular engineering student who gets a good job is paying off not only his own loan, but also that of his classmate — the one with an underwater basket-weaving degree who works at a coffee shop.

Reportedly, the college explains the math and announces the risks going in.  Without having been a fly on the wall at the time, we cannot be sure of just how hard the college tries to warn its students about what an incredible coin toss it is, but one can easily agree that this is a challenging decision to leave to an 18-year-old.  

If you don't get a good job, you don't pay anything.  If you do get a good job, you pay a lot.  If you get a great job, you pay a ton.  Putting oneself in the shoes of the 18-year-old, that may sound like a decent roll of the dice.  The lender will offer the program to good candidates with good majors, but you never know.  Even a hot employment market during freshman year might be in a glut on graduation day four or five years later.

Should there be a cap, so young Mr. Feldman doesn't pay 2.5 times his loan amount?  Probably.  Loan rates like these have been inspiring fury on the part of borrowers at least since Shakespeare's day.  Expecting that kid (and his parents) to fully anticipate this eventuality may indeed be unfair.

The issue is worthy of debate.  The federal government took a step in regulating ISAs on March 2, 2022 (though that doesn't mean the concept will get the fair hearing it merits).

But back to the news story.  While it's fair to say the ISA approach merits review, is this really a Purdue issue?

Data aren't perfect in these matters — not everything is tracked as well as it might be — but here's an idea of the size of the problem: there are about 5,300 degree-granting institutions, but after removing the community colleges, beauty schools, and such, there are about 3,000 that actually have high enough costs to require their students to enter the student loan game.  And only about a hundred of those 3,000 colleges even offer an ISA. 

At Purdue, as of a year ago (the last statistic this writer could find on the matter), only a thousand students, total, had utilized ISAs since their inception six years previously.

The Purdue system serves about 70,000 students at a time, of whom, at most, only a couple hundred at a time might be affected by this particular program.  The odds being what they are, the number who are at risk of being so adversely affected by the program as Mr. Feldman was can probably be counted in the dozens, if that.

This is not to say it's not important.  For those it hits hard, this is a huge issue.  But it's an indictment against a little-used and relatively new national concept, shared in various ways by a hundred schools.  It's not a black mark against the exemplary career of Mitch Daniels.

But if there is one thing we have learned from the mainstream media in recent years, it is that the way a reporter covers a story is sometimes a bigger exposé than the story itself.

Yahoo Finance had to know that, however worthy of review the ISA concept is, using it as a cudgel against Mitch Daniels, a man whose name has become synonymous with the cause of making college affordable again, was disingenuous at best, undermining what could have been a worthwhile piece.

But that didn't stop them.  With many in today's press, the opportunity to tie an injustice to a conservative Republican, however tenuous the connection, is just irresistible.

(UPDATE: We inadvertently used a photo that was not Mitch Daniels.  We have corrected that error.)

John F. Di Leo is a Chicagoland-based international transportation professional.  A onetime Milwaukee County Republican Party chairman, he has been writing a regular column for Illinois Review since 2009.  His book on vote fraud (The Tales of Little Pavel) and his brand-new political satires on the current administration (Evening Soup with Basement Joe, Volumes I and II) are available on Amazon.

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