During the past decade, the cost of higher education in the United States has outpaced growth in personal income as well as cost of living increases. This has resulted in a rapid rise in student indebtedness, which many experts view as a looming crisis. Purdue University has responded to this crisis in an innovative wayallowing students to enroll in return for a fixed percentage of their future income. Purdue University rolled out the "Back a Boiler" program in 2016, using a concept known as an income-share agreement, or ISA, that is available to rising juniors and seniors. The awards will begin at $5,000 and take into consideration a student's cumulative debt. It is different from a typical loan because students would repay the debt based on a fixed rate linked to their expected income. In a sense, it may be viewed as a gamble that could save them thousands of dollars as compared to traditional loans. But it could also cost them far more If they land high-paying jobs.

To illustrate, a senior majoring in chemical engineering could sign a contract for $10,000 and pay 2.68 percent of her income over seven years, according to Purdue's online calculator. On the other hand, a student planning to work in a less lucrative field such as comparative literature would shell out a larger portion of her paycheck with contracts lasting no longer than nine years. This is shorter than the federal-aid 10-year repayment plan that stretches out much longer if a borrower falls behind. And Purdue caps repayment at 2.5 times the value of the contract with the objective to plow returns into helping future students. As noted by Purdue University's President Mitch Daniels, "Clearly there is an explosion in student debt and the default rate is a concern. That got me seriously thinking about this, not as replacement (for federal loans) but as a new option."

A concern might be that only poor performing students would be more likely to be interested. However, Purdue's plan to offer contracts tailored to individuals will help the school recoup the investment. Another issue is whether ISA: can compete with federal programs such as Pell Grants. One potential positive outcome: If the program takes off, students looking at contracts would see data on predicted earningsthus, they may be inclined to choose majors that tend to produce more value.Purdue structured the income shares to be similar to other forms of unsecured consumer debt. However, it has the added protection that has been extremely difficult to obtain with student loans: bankruptcy discharge. The foundation has put protections in place to account for hardship such as not requiring payments for graduates who earn less than S20.OOO a year. However, if someone makes about that amount but fails to make paymentsthey will be pursued through debt collection.

What are the advantages and disadvantages of an income sharing agreement? Could these programs be successful and a possible market for these private income sharing agreements in the future?