Blog

Category: Student loans

Understanding the True Cost of Student Loans

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Jul 09, 2019
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Student loans, Income-share agreements

Working with student loans can be a stressful and difficult process, especially when it comes to understanding the actual cost of everything involved. It may look reasonable initially - borrow money, then pay it back - but there are actually more than a few potential complications along the way. Like an iceberg, many of the hazards involved in taking out a loan are under the surface. There are several factors involved in determining interest, both at the time of taking out the loan and while...

Student Debt can Hurt Job Prospects. Income Share Agreements can Help.

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May 06, 2019
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Income-share agreements, Student loans, Career development and mentoring

Figure 1: Average MentorWorks ISA Income Prediction Error after Grace Period. Higher prediction errors reflects higher than expected income. Source: MentorWorks EdCap (www.mentorworks.io) An important effect of student debt that has not received a lot of attention is that it reduces the amount of time available to finding a job and leads to compromises during job searches. Students have to make debt payments after graduation and must find employment as soon as possible, rather than search for a...

Which is more like indentured servitude: Income share agreement or student loan?

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Apr 24, 2019
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Income-share agreements, Student loans, Social justice

 We have heard the concern that income share agreements (ISAs) can be like indentured servitude. At face value, this seems plausible, given the notion of “income sharing” embedded in the name of this financing option. I would like to dispel this criticism of ISAs in this note, including the substantive nature of this argument and the aspects driving this perception. In simple terms, an educational income share agreement is an obligation, but not a loan, where a student gets...

Will Income Share Agreements (ISAs) only work by cherry-picking “STEM” programs? The reality is quite different.

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Mar 02, 2019
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Income-share agreements, Student loans

Update (3/2019): I had a great conversation with Will Quist at the 2019 Life Capital conference and acknowledge his well taken point. That is, in the discussion that follows, we are assuming that ISAs have a cap. The question of what kind of cap structure is optimal in ISAs goes beyond the scope of this article. A big thanks to Will for an insightful point! ---------------------------------------------------------------------------- Income share agreements (ISAs) have started to become a...

Student Loans and Their Impact on Career Choices

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Dec 17, 2018
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Student loans, Income-share agreements

In an era of skyrocketing tuition costs and repeatedly slashed public education budgets, increasing numbers of American students have resorted to taking out loans in order to fund their education. Doing so saddles the student with a heavy burden of debt; the total accumulated student debt in the United States has been recently valued at approximately $1.5 trillion and rising,1 accounting for roughly 10% of all documented household debt.2 Statistics for students graduating in 2016 reveal that the...

Expert Interview: Min Zhan & the Effect of Loans on Low-Income Students

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May 17, 2018
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Student loans

Joel had the opportunity to speak with Min Zhan, a professor at the University of Illinois. Her research focuses on the economic mobility of low-income families. Zhan finds that the human capital development provided by higher education can improve the economic standing of low-income students. However, low-income students usually take out large amounts of student loans, which can have negative effects on their financial wellbeing. In the following interview, Zhan discusses the impact of higher...

What Do Higher Interest Rates Mean For Your Student Loans?

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May 15, 2018
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Student loans

Once a year, the federal government sets the annual interest rate on federal student loans. This rate effectively determines how expensive it is for students to borrow money from the government for their education. Although this interest rate has been increasing in recent years, Congress has set a ceiling of 8.25% on these loans. While the Department of Education hasn’t formally set interest rates on student loans yet, this year’s rates are expected to increase. Last year,...

The Need for More Student Loan Research

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May 14, 2018
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Student loans

With nearly five million borrowers in default on their student loans, it is clear that the policies surrounding educational finance need improvement. When student debt levels increase, it has major effects on the overall economy. If policies don’t change, the student loan crisis has the potential to negatively impact the economy in years to come. In recent years, proposals for student loan policy have been based primarily on preconceived notions and assumptions. In order to make informed...

UCLA Professors Discuss the Cost of Higher Education

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May 10, 2018
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Student loans

The cost of a college education is becoming more and more expensive. A recent report by the College Board states that going to a private four-year institution costs $34,740 a year. In 1988, this number was $15,160 (adjusted for inflation). As rising costs threaten college accessibility, the US government has implemented large-scale initiatives to help students pay for college. One such initiative is the PLUS loan program. There are approximately 4.5 million students with loans from the PLUS...

Expert Interview: William Mann & Education Financing

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May 10, 2018
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Student loans

I recently spoke with William Mann, a finance professor at UCLA doing research on how corporations find capital to run their businesses. He has recently taken an interest in student loans as it draws a natural analogy with how households find money to make purchases (such as a college education). In the following conversation, William gives profound insight into his research and the higher education market as a whole. I also had a conversation with William’s co-author, Mahyar Kargar Tell...

Expert Interview: Mahyar Kargar & Household Finance

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May 10, 2018
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Student loans

I spoke with Mahyar Kargar, a finance professor and Ph.D. candidate at UCLA’s Anderson School of Management. Mahyar’s key area of interest in his research revolves around household finance. I managed to get in touch with him to talk about his work and insight in household finance. Could you tell me a bit about yourself? I am in my final year as a Ph.D. candidate at UCLA in Finance. One of the research areas I am interested in is household finance. This project was based on a conversation...

Constantine Yannelis & the State of Student Loans

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May 03, 2018
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Student loans

In 2010, student loan debt had surpassed credit card debt – taking second place behind mortgage debt, totaling at $825 billion. Fast forward eight years and this number have almost doubled to $1.5 trillion. To make things worse, five million Americans defaulting on student loans. The average student graduating in the class of 2017 owes $39,400 – what is more concerning is the number of people taking on substantial student loans ($50,000 or more). In 1992, only 2% of people who have...

Rising Outstanding Student Debt

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Apr 23, 2018
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Student loans

During the 2008 housing crisis, a minority of borrowers were responsible for the majority of the country’s outstanding mortgage debt. Now, the same patterns are happening with student debt: students with over $50,000 in loans make up more than half of the country’s outstanding student debt. Which students are taking out the most loans? In many cases, it’s graduate school students. In theory, these borrowers have higher earning potential and are more likely to pay back their...

Parents' Student Loans Hurt Their Children

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Apr 17, 2018
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Student loans, Income-share agreements

As student loan debt increases, it is becoming a generational problem. The average graduate with a bachelor’s degree takes 21 years to pay off their student loans. For graduates starting their families shortly after graduation, this often means they are paying back their own debt throughout their children’s’ lives. In a recent survey, 20% of students say their parents are still paying back their own student loans. In a survey of Generation Z students, more than half expect...

Protecting the Rights of Student Loan Borrowers

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Apr 12, 2018
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Student loans, Income-share agreements

Protecting student loan borrowers may not seem like a polarizing issue, but it has caused conflict between federal and state governments in recent months. In response to the lack of federal protections for student loan borrowers, many states have put their own systems in place. However, there has been pushback from the federal government, since many government officials believe that states do not have the right to regulate student loan providers. The latest to pass a bill protecting borrowers?...

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