Chelsea Schneider

Chelsea.Schneider@indystar.com

For two years, Amy Wroblewski has financed college with high-interest private loans, but next year, the Purdue University junior is part of an experiment the college is undertaking to combat student debt.

To cover the cost of her degree, Wroblewski, 20, will promise to pay a share of her future earnings to Purdue for nine years after she graduates. It’s a program Purdue President Mitch Daniels, a former Indiana governor, has coined “Back-a-Boiler.”

Purdue is enrolling the first round of students in the program, making the university the biggest player in the nation to try the novel concept. Students enter into income-share agreements rather than taking out a traditional college loan. As Daniels puts it, the program amounts to “working your way through college, after college,” though a leading Purdue faculty member worries the agreements aren’t a good deal.

Daniels and other school leaders say the program could one day become a nationwide alternative to student loan debt that in Indiana is estimated at more than $29,000 per college graduate.

If it works.

And that’s the question Purdue is starting to figure out this fall.

Already the college has enrolled more than 120 students, providing upward of $2.2 million in aid for the 2016-17 school year.

For Wroblewski, the program means she can forgo taking out another private loan where she’s seen interest rates as high as 9.8 percent. Instead, the management major expects to pay about $127 per month through her income-share agreement, and that cost could go down if she has issues securing a job.

The payment plan takes the stress off of affording college, she said.

“It’s very daunting,” Wroblewski said of her loan debt. “I knew this was going to be a burden on myself and my parents. I just knew I have to get my degree. I have to get a really good job after college, or I cannot pay for my college. I was in just a lot of pressure.”

Daniels' 'Bet on a Boiler': What's the catch?

Here’s how it’s designed: The college sets the repayment amount based on the anticipated earnings of a student’s area of study, with the goal of not exceeding 10 percent of a graduate’s income. As opposed, to the only other option some students face – a private loan where interest can start accruing immediately. If a student is unsuccessful, or doesn’t earn what they anticipated, monthly payments under “Back-a-Boiler” would go down.

“I always point out to people that it shifts the risk that things work out, or won’t work out quickly, from the student to somebody else, mainly the investor,” Daniels said.

To front the cost of educating those students, the college plans to seek out investors. For now, the Purdue Research Foundation has provided the first $5 million. The hope is students will pay back what they received, plus a little bit more to keep the program running.

So far interest from students in wanting to join “Back-a-Boiler” has exceeded college officials’ expectations.

“We’re out to learn here,” Daniels said. “I’ve been trying to be cautious and low key about this.”

Daniels: ‘Away we went’

The story of how Purdue came to offer this type of income-share program started last year when Daniels testified in front of Congress.

He was trying to make the point that “federal red tape” gets in the way of innovation in higher education. Income-share agreements, an idea born out of economist Milton Friedman, was the last of the examples he cited.

“I immediately began hearing from people who were floating around out there very interested in this idea, and no one had been willing to try it,” Daniels said.

Daniels, who as a two-term governor was known for not shying away from novel or untried ideas, said an innocent comment on a broader subject made him discover the potential draw of the financial aid concept. He heard from people in academe and from those who were putting startup businesses together to make income-share agreements work. And he heard from people preparing to raise money in case there came a place to invest it.

“And away we went,” he said.

Ted Malone, Purdue’s financial aid chief, admits he was skeptical at first, almost envisioning a shark tank where a student stands in front of a bunch of rich people and them saying “well, I’ll give you this for that.”

“But the way we have it set up, it’s not going to be based on personality. It’s simply based on a first come, first serve to qualified students. We’re not giving any preferences to engineers over the college of education, nor vice versa. We’re looking at every student who applies and looking at them for their potential,” Malone said.

Now the college is focused on whether “Back-a-Boiler” can become self-sustaining and estimates up to 400 students could be part of the initial group. Nearly 70 majors are currently represented in the pool of students enrolled in the program.

But income-share agreements might not be the right fit for all students, said Robert Kelchen, a higher education professor at Seton Hall University. He argued the program is a trade-off between the safety of having payments tied to income, and the risk of a student repaying more if they earn a higher salary. The system also could collapse if only lower-earning graduates use it.

“It shows that Purdue believes in its students enough to think they will do well and that Purdue will get its money back. The real question is who ends up picking up these (agreements,)” Kelchen said.

Some critics of the idea describe the agreements as “indentured servitude,” and say new income-based repayments for federal loans could be a better option for students.

David Sanders, chair of the University Senate that represents faculty members at Purdue, said he’s concerned about the structure of the program.

“With a loan you know how much it is going to cost you within a certain amount of time,” Sanders said. “Students don’t know that with these income-share agreements. It’s quite difficult for them to a make a reasonable calculation about loan vs. income-share agreement.”

Students to get lesson on college loans

Widespread support

With the college’s foundation covering the initial cost, Daniels anticipates alumni also will be willing to invest.

“But if it’s going to be a genuine large-scale alternative to student debt on a national level, you’re going to have also a lot of investors who just see it as a smart thing to do,” Daniels said.

Daniels shrugged off criticism of the program.

“In fact, the indentured servitude is the student debt of today – that is indentured servitude,” Daniels said. “In an (income-share agreement) the student is totally free, they don’t have to work at all. If they don’t, they just walk, and it’s the investor who loses.”

The bipartisan support income-share agreements have received helped cement Daniels' interest in carrying out the concept.

“We need more ideas like that, he said.

Beth Akers, a fellow at the Brookings Institution, has said while the agreements “may not be the silver bullet that will solve all of our collective concerns” they have a place in higher education.

Separately, the Center on Higher Education Reform concluded the agreements “would provide students with funding based on their potential to be successful in a particular program, not based on their family’s economic circumstances or the presence of a co-signer. Therefore, students of all backgrounds can get the financing they need for programs that are worthwhile.”

As for Wroblewski, she thinks “Back-a-Boiler” is the smarter way to go. She expects students will choose Purdue over other colleges because it offers the financial aid option.

“It’s really working with how you are living and everything,” she said. “It’s more personalized.”

Call IndyStar reporter Chelsea Schneider at (317) 444-6077. Follow her on Twitter: @IndyStarChelsea.

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