Student debt is on the rise in the U.S.
California college students could get some help paying present-day bills without taking out new loans under a proposal moving forward in the state Legislature.
The catch is that the students would have to pledge a portion of their future earnings to their college or university. That means students who earn more would pay more.
The deal as proposed by Assemblyman Randy Voepel, R-Santee, in Assembly Bill 154 would allow California college and university students to enter into so-called “income share agreements” with their campus.
A number of small colleges around the country are experimenting with those arrangements as they seek to relieve their students of crushing debt loads. In 2015, California college students graduated with an average debt of more than $22,000, according to the Institute for College Access and Success.
Voepel’s bill would call on the California State University and University of California systems to each establish a pilot program at one of their schools beginning in the 2021-22 academic year.
The pilot program would be open to sophomores, juniors and seniors. In exchange for coverage of college expenses, participants would be required to pay a percentage of their income over a period of 10 years, beginning six months after graduation. The monthly payments would be determined by the student’s annual income.
Students making less than $20,000 a year would be exempt from making payments until their income passed that threshold.
The participating universities would be required to submit pilot program reports to the Legislature in 2023 and 2026.
While the bill would require a legislative appropriation, the income sharing agreement program could become self-supporting “if the campuses collect sufficient income from program participants,” according to a fiscal impact statement for a similar bill that Voepel introduced in the last legislative session.
That bill passed unanimously out of the Assembly, but died in the Senate Appropriations Committee. The UC and CSU systems did not take formal positions on the proposal.
The concept dates back to the 1950s, when economist Milton Friedman suggested government might pursue income-share agreements as alternatives to loans and subsidies.
A legislative analysis at the Assembly Higher Education last year said income share agreements “offer an alternative to debt.”
“Debt creates substantial risks to students if they cannot afford their payments after college, whereas (income sharing agreement) payments adjust according to levels of income,” the analysis found.
Unlike a loan, students with income-share agreements would not owe interest. Many students, however, would pay more over time than they borrow because they’d have to pay a certain percentage of their income back to their colleges, according to the analysis.
One California school, Allan Hancock College in Santa Maria, already offers students the option of income sharing, according to U.S. News and World Report.
That report found that other schools nationwide that offer such agreements include Colorado Mountain College, Purdue University in Indiana, Clarkson University in New York, Lackawanna College and Messiah College in Pennsylvania and Norwich University in Vermont.
A.B. 154 could have a hearing as soon as Feb. 7.