Mitch Daniels pushes new plan to pay for college

WASHINGTON – Purdue University President Mitch Daniels would like to give students another way to finance their education.

Instead of taking out a traditional college loan, students would have the option of finding an investor — possibly a Purdue alum — to finance their degree in exchange for a share of their future income.

But to try that idea, Daniels told members of Congress on Tuesday, he needs federal legislation.

"When I bring it up, people say, 'Yeah, it's a great concept. But the law is not clear,' " Daniels said after testifying before a House panel working on a higher-education bill.

The idea was among several recommendations Daniels made for ways Congress could change higher-education programs. He also called for simplifying the financial aid system, reducing regulatory burdens on schools and helping schools try new approaches, such as advancing students based on subject mastery rather than on credit hours.

Indiana Rep. Luke Messer, a member of the committee, said the income-sharing idea is new to him, but he's intrigued.

'It's a Daniels-like idea, where you're trying to find innovative ways to help deal with student debt," the Shelbyville Republican said after Tuesday's hearing before the House Education and the Workforce Subcommittee on Higher Education and Workforce Training.

Scholars say the idea was first proposed by economist Milton Friedman in the 1950s.

Beth Akers, a fellow at the Brookings Institution's Brown Center on Education Policy, wrote last year that the idea is sometimes dismissed as a gimmick, akin to indentured servitude. But such arrangements could be better than traditional loans in shielding students from risk — and could encourage schools to price programs based on the amount graduates are likely to earn, she wrote.

Akers said the arrangements are being used in only a few places, including trade schools that train web developers in exchange for 18 percent of their first-year income, and a nonprofit started in 2009 that helps first-generation immigrants and low-income students in California.

Sen. Marco Rubio, R-Fla., and former Rep. Tom Petri, R-Wis., introduced legislation last year to help create the legal framework for income-sharing agreements. The bills did not advance.

If Congress backs the idea, Daniels said, the program could appeal to alumni as an alternative to a straight donation. And some might prefer that their repayment money be used to help other students, he said.

"I was going to call it 'Bet on a Boiler,' " he said. "We've got this data that says if you support the education of a student at our school, they're almost certain to be able to pay it back. So it would be a sound investment."

Email Maureen Groppe at mgroppe@gannett.com . Follow her on Twitter: @mgroppe.