Venture capital college

Former Indiana Gov. Mitch Daniels, hailed as a political innovator, has taken his free-market conservatism to higher education. Now president of Purdue University, Daniels is championing a different way for students to finance their education without racking up crushing amounts of debt. Income sharing agreements (ISAs) allow investors to pay for a student’s education in exchange for a portion of the graduate’s future earnings.

Although Purdue isn’t the first university to use ISAs, it’s the biggest and most prominent. And its model forms the basis for federal legislation that aims to encourage other schools to adopt similar programs by setting some regulatory guidelines.

Rep. Luke Messer, R-Ind., is working with Daniels to draft a bill that would make it easier for investors to participate in ISAs while setting consumer protection caps on payments and the length of the contract. The effort has bipartisan support. Rep. Jared Polis, D-Colo., co-authored the House bill, and Sens. Marco Rubio, R-Fla., and Todd Young, R-Ind., submitted similar legislation in the Senate.

Right now, only a few thousand students finance their education through ISAs. One analyst estimates ISA investment totals just $20 million. But the ISA market could balloon to $1 billion in just five years, Charles Trafton, head of FlowPoint Capital, told Business Insider.

ISAs have been compared to venture capital for college students. Like other investments, they carry risk for both the investor and the student. Under Purdue’s program, called “Back-a-Boiler,” student repayment is capped at 10 years and 2.5 times the initial investment. In most cases, students will do better than they would if they took out loans. But if they get a high salary, they might end up paying more. On the flip side, investors run the risk of not making back their money, since only graduates who are employed and making more than $20,000 are required to make repayments.

Since they don’t want to get stuck holding the bag on a bad investment, ISA funders could be choosy about which students they support. That likely would open the programs to criticism from those who say they unfairly favor certain types of students and degree plans. But advocates call them the ultimate meritocracy. Investors don’t care about a student’s background, ethnicity, or financial situation before college. All they care about is the student’s academic performance, work ethic, and likelihood of landing a good job after graduation.

Higher education analysts have long decried the number of students who take out loans to get essentially worthless degrees. They also lament the continually rising costs of getting a degree. If ISAs really take off like advocates expect, they could help address both problems. Investment groups not tied to a particular school likely will scrutinize a university’s ability to turn out productive graduates just as carefully as they will evaluate an individual student’s ability to get that degree.

The states of tuition payments

Speaking of spiraling college costs, Preston Cooper at the American Enterprise Institute just released an analysis of the tuition differences between states. The national average is $8,778 for in-state tuition, but there’s a wide gap between the lowest and highest tuition bills. Wisconsin students pay $4,178 per semester, while those in Vermont pay $15,062.

As might be expected, it’s cheaper to go to college in states with lower living costs. But that doesn’t account for all of the discrepancy. Cooper used the regional price parity index to adjust each state’s tuition based on cost of living, offering a more accurate comparison.

Vermont and Wisconsin still bookend the list. Next in line for the most expensive are New Hampshire, Pennsylvania, Illinois, and South Carolina. At the top of the bargain barrel: Florida, Nevada, Utah, and Alaska. (Here’s a graph showing all the states.)

State university systems can charge such varied tuition because they have a captive audience, thanks to in-state tuition discounts, Cooper said. With the exception possibly of Vermont, most students still pay less to go to school in their home state. Cooper argues policies fostering more cross-state competition would bring those costs down for everyone. That probably would be a tough (read, impossible) sell in Washington, but market pressures might soon force such a sea change. —L.J.

Cause and effect?

The number of students going to college has dropped for five years in a row—unprecedented for U.S. higher education, according to the National Student Clearinghouse. Between 2011 and the spring semester of 2017, 2.4 million fewer students enrolled in college and university classes. Analysts don’t expect to see the trend reverse until 2023.

But high school graduating classes aren’t shrinking at the same rate in every state. Some states even project an increase in prospective college students. Texas is expected to have a 66 percent increase in high school graduates by 2031, while Vermont is looking at a 19 percent decrease. With fewer students lining up to pay its high tuition, maybe Vermont might consider a tuition sale or lowering the out-of-state tuition rate. Surely someone from Texas would be interested in going to school in Vermont. Right? —L.J.

Not their civil rights issue

In October, the NAACP issued a resolution calling for a moratorium on new charter schools. The organization claims charters hurt African-American students and perpetuate segregated schooling. During the last six months, NAACP leaders toured the country to test that hypothesis. They plan to issue a report detailing their findings next month, but HuffPost got a preview. Not surprisingly, the group’s leaders haven’t changed their minds. They still complain charters don’t help improve public education and have too much autonomy. And during their July convention, NAACP leaders plan to launch a major anti–charter school initiative. —L.J.

School choice in North Carolina

North Carolina became the sixth state to establish an education savings account program when lawmakers approved a plan for special needs students this legislative session. Under the program, qualifying students will have access to $9,000 in state funds to pay for private schooling, tutoring, therapy, or other qualified educational expenses. The program will work in tandem with two other funds for special needs students, giving their families as much as $21,000 a year to customize a child’s education. Lawmakers gave the program $3 million for the 2017-2018 school year, expecting to ramp up participation next year. —L.J.