Building A Better College Loan:  Purdue Program Wins $10,000 Prize in Boston Think Tank’s Annual Competition

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An innovative financial aid program at Purdue University has been awarded a $10,000 prize in the 27th annual Better Government Competition held by the Pioneer Institute, a public research organization located in Boston.

Purdue’s Back A Boiler program, chosen out of more than 80 contest submissions from around the United States, is a supplemental financial aid option for “rising sophomores, juniors, and seniors” using income share agreements, which tap into the future income of those graduates who enroll in the program.

Participating undergraduates contract with investors, often Purdue alumni, who agree to pay tuition in exchange for a portion of graduates’ future income; payments are formula-based, with students paying a percentage of projected earnings over a period outlined in the agreement.

The program, which started in 2016, in part addresses the formidable college debt many students carry after graduation; according to the Federal Reserve’s board of governors, college graduates owed more than $1.5 trillion as of the first quarter of 2018. (A January 2018 report published by the Brookings Institute suggests default rates may reach as high as 40 percent by 2023.)

“Our country is at a crisis point where, on one side, the models for providing and financing higher education and workforce training are changing fast and, on the other, we have an old system that has saddled the young with debt that is a drag on their ability to pursue their dreams and fully participate in the economy,” said Jim Stergios, executive director of the Pioneer Institute, in a written statement.

The award will be presented Monday September 24 at the institute’s gala at the Seaport Hotel in South Boston.

Purdue University is in West Lafayette, Indiana.

Since Back A Boiler’s income share agreements are not like traditional student loans, which often include burdensome interest payments, graduates who have one do not face either debilitating interest or potentially overwhelming monthly payments. With payments based on a percentage of income, a graduate’s term payment will not remain constant should income levels rise or fall, but will adjust proportionately.

Also, since the income share ageement is based on percentage and an agreed-to timeframe for repayment, graduates may pay less than or more than the total amount borrowed. As long as obligations are met, a graduate who, for example, borrowed $10,000 at 5 percent of projected income over 10 years, will have paid off the loan even if total payments fall below the $10,000 principal. Similarly, high-income earners might end up paying more, though there are options for paying off the debt early for such borrowers.

The standard repayment timeframe is 10 years.

Back A Boiler program manager Mary-Claire Cartwright told New Boston Post that the highly flexible program “is meant to fund students with a gap in financial need after they have exhausted their grants, scholarships and federal aid.” 

According to the program’s literature, 500 undergraduates have made income share agreement contracts totaling more than $6 million in aid, with all colleges at Purdue and over 120 majors represented. Of the 12 schools and colleges at the university, the top six with students enrolled are Engineering, Polytechnic Institute, Health Sciences, Human Sciences, Liberal Arts, and Krannert School of Management and Agriculture.

Cartwright told New Boston Post that most of the initial monies for the first two years of the program came from Purdue University. Subsequently, outside investors have come on board.

“We are within a few weeks of closing our second round of funding that we estimate will fund the next two or three academic years of ISAs,” Cartwright said.

There is a secondary benefit to the program, too, Cartwright noted, as the university has a financial incentive in Purdue’s graduates’ financial success.

“Not only is Purdue making school more affordable,” she said, “ISAs are a way of showing students that we so believe in the Purdue degree that we are willing to share the risk with them in regards to their after-graduation outcomes.”

Stergios said he believes Back A Boiler and other programs noted in the competition are relevant to issues facing the Commonwealth.

“The ideas Pioneer is honoring aim to allow Massachusetts to reimagine how we provide access to affordable higher education and training,” he said in a written statement.

Both Cartwright and Cynthia Sequin, assistant vice president of marketing and communications for Purdue Research Foundation, will be traveling to Boston to receive the $10,000 award.

“There were so many strong entries for this competition and we feel a great honor to be recognized by the Pioneer Institute,” Sequin told New Boston Post.

According to Pioneer, this year’s competition focused on “making higher education and career training options affordable and effective.”

John Sexton, president emeritus of New York University, plans to deliver the keynote address at Monday night’s event. Massachusetts Governor Charlie Baker is also scheduled to speak.

Along with the winner, four other programs will be honored, each receiving $1,000 runner-up awards.

Pioneer’s director of communications, Micaela Dawson, told New Boston Post that “250 of Boston’s most influential professionals in the worlds of politics, business, law, medicine, media, and non-profit organizations” are expected to attend the awards gala.

Four runners-up, each receiving $1,000, will also be honored at the gala:

  • Alfond Scholarship Foundation: Harold Alfond College Challenge, an investment program issuing $500 grants for every child born in the state of Maine to be used for college expenses
  • American Institute for Innovative Apprenticeship: Expanding Apprenticeships In Massachusetts
  • Federation of Advanced Manufacturing Education: Advanced Manufacturing Career Pathways, an education model that prepares students for employment as technicians, engineers, or business leaders
  • Wisconsin Bureau of Apprenticeship Standards: Youth Apprenticeships

The Pioneer Institute was founded in 1988 and describes itself as an “independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.”

For more information about the Better Government Competition gala, contact Laura Corvese at the Pioneer Institute by telephone at 617-723-2277 extension 202 or by email at [email protected].