BALTIMORE — College decision day is next week. Aside from where students choose, there's the question of how they'll pay for it.
Several colleges are trying a new kind of financial arrangement where students can apply for money from the school instead of having to take out a student loan. However, these schools expect something in return.
It’s called an income share agreement (ISA).
“The way this works is when you're going here, you'll either pay reduced tuition or maybe no tuition at all but then the downside of this is after you graduate, you're going to be paying a certain amount of your income to us,” said JP Krahel, an accounting professor at Loyola University Maryland Sellinger School of Business.
This approach is not available at Loyola University Maryland. You’ll only find it at around five college institutions around the country. They include Purdue University, University of Utah, Colorado Mountain College, Clarkson University, and Messiah College.
Students can receive up to $20,000 per academic year. In exchange, they give the school anywhere from nearly 2 to 12 percent of their salaries after they graduate.
“So, if you're earning more, then the school gets more after the fact. If you're not making so much, the school doesn't get so much,” Krahel said.
The terms vary at each school. Some require a higher percentage of a student’s income based on their college degree, and the duration of payments are different depending on the ISA amount and major. The payment caps also vary from the ISA amount to 2.5 times the amount taken out.
When comparing ISAs to private loans, you may also save more in the long term.
Purdue University found that repayment of a $10,000 ISA would be around $15,673 compared to $17,126 with a private loan over 10 years.
“It's not being done in the state of Maryland,” said Maryland Higher Education Commission Secretary James Fielder. MHEC oversees scholarship and grant programs in the state.
Fielder said the aim in Maryland has been to keep tuition low and limit annual increases to around 2 percent.
ISAs are also a gamble. Students need to be successful in order for universities to benefit.
Several Maryland institutions have said they're still exploring this approach. In the meantime, MHEC oversees the disbursement of millions of dollars in scholarships and grants.
“So this year, it's going to $111 million, and then on top of that another $9 million for tax credits,” said Secretary Fielder.
The new Community College Promise Scholarship awards up to $5,000 to eligible high schoolers for community college. And dual enrollment and the advanced placement programs help high schoolers finish college faster.
“For the student that goes into an AP program in high school and takes 30 credits, they've just finished one year of college,” Fielder said.
He's also seen more interest in online colleges.
“They’re not spending the money on the road, they're not spending the money on the car, they're not spending the money on the dormitories and all those other costs, so it's a real impact for colleges,” said Fielder.
Professor Krahel helps students price out loan payments, and more often than not, they’re shocked to learn how much they’ll pay over time.
“A lot of times I'll see students and their eyes just kind of sink a little bit and their jaws fall. And this is a big deal, but ignoring it isn't going to make it better, understanding your options is what's going to make it better,” said Krahel.
Once students fill out the Free Application for Federal Student Aid (FAFSA), MHEC is notified of students who may be eligible for Maryland scholarships and grants. The agency will then contact students to let them know to apply.
To see a full list of Maryland scholarships and grants, click here.
Below is a list of schools that offer ISAs and links to more information on their programs:
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