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by Shannon Vasconcelos, former financial aid officer at Tufts University

  • The net worth of the median Black family is one-tenth that of the typical white family. (Board of Governors of the Federal Reserve System)
  • Black Americans are paid less than white Americans at every education level, with Black college graduates earning $26/hour compared to $31/hour average wages for white graduates. (Economic Policy Institute)
  • Black college graduates, on average, borrow $7,400 more each in student loans than their white counterparts. Four years later, the remaining debt of Black grads is double that of whites. (Brookings Institution)
  • Over one-third of Black Parent PLUS Loan borrowers have household incomes less than $30,000/year (compared to 12% of white borrowers). (New America)
  • Black student loan borrowers default on their loans at 2.5 times the rate of white borrowers. (Center for American Progress)

Do these statistics concern you?

They do me, and they certainly alarmed billionaire Robert F. Smith, identified by Forbes magazine as the wealthiest Black man in America, who hit the news last year for giving the world’s largest graduation gift by paying off the student loan debt of every member of the Morehouse College Class of 2019. While a college education is meant to empower students economically (and otherwise), it seems that the student loan debt burden associated with educational attainment in the U.S. is having the opposite effect for many Black students. In response to this crisis in education equity, Smith recently announced a new college access initiative more sustainable than last year’s massive—yet limited in scope—gesture. Smith is leading up an effort to fund the Student Freedom Initiative, an Income Share Agreement meant to ease the student loan debt burden of students at up to 11 Historically Black Colleges and Universities (HBCUs) across the country.

What is an Income Share Agreement?

An Income Share Agreement (ISA) is an innovative way to fund a college education and can be used as a substitute for (or supplement to) traditional student loans. Students who enter into an ISA receive funding to help cover their college bill, and, in exchange, agree to repay to the ISA fund a certain percentage of their income for a specified number of years post-graduation. Students with low incomes will pay less and students with higher incomes will end up paying more. These repayments are then used to finance the educations of future students, in a self-sustaining model. While experimented with in the past, Purdue University’s Back a Boiler program, founded in 2016, is the forerunner of the modern iteration of the ISA, and serves as an example for many colleges considering alternative pathways to education financing.

Student Freedom Initiative Specifics

While some details of Smith’s Student Freedom Initiative are still being worked out, the plan is for the ISA to help fund the educations of approximately 5,000 junior and senior STEM (science, technology, engineering, and math) majors at HBCUs each year, beginning in 2021. The targeting of STEM students likely serves a two-fold purpose: it (1) encourages more Black students to consider STEM majors—fields in which they are historically underrepresented—and (2) helps ensure the solvency of the program by restricting it to students more likely to make higher incomes, facilitating higher repayment rates. The restriction to junior and senior students is also likely a protective mechanism meant to safeguard the viability of the program. Withdrawal rates are high for underclassmen, and students who make it to junior and senior year are much more likely to graduate and, it follows, earn a decent income, a percentage of which will be paid back to the program to finance the next generation’s education.

Considerations and Conclusion

Funding a college education in the U.S. is a challenge, and the statistics bear out that Black students and their families bear a disproportionate share of America’s student loan debt burden. While the causes of racial inequity are varied and complex, and no one program will magically erase deep-rooted disparities, I applaud efforts like the Student Freedom Initiative to help right the scales of equity and think creatively about how to narrow gaps in wealth and educational access.

If you are a student or parent weighing financing options, and your college offers an Income Share Agreement, consider it carefully. Know that it is not free money and that the ISA’s terms should be compared to those of other funding alternatives. Modern ISAs are too new to have undergone the scrutiny of long-term study, and, depending upon the details of the ISA and your eventual income, entering into an ISA like the Student Freedom Initiative may result in you paying less—or more—than your family would have paid had you borrowed a traditional student or parent loan. ISAs do provide the security, however, of knowing that education debt payments will never eat up an unreasonable portion of your income, providing graduates the freedom to pursue career paths of their choosing. Nor will they overburden your parents in debt, as the current PLUS Loan system does for many Black families. And if, as an ISA participant, your income does reach levels where ISA repayment exceeds what you may have paid on a traditional college loan, you can take heart in knowing that your payments are going, not to a bank, but back to your community, and your success is helping to fund the future success of students whose path resembles your own.

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Written by Shannon Vasconcelos
Shannon Vasconcelos is a college finance expert at College Coach. Before joining College Coach, she was a Senior Financial Aid Officer at Tufts University and Boston University. Visit our website to learn more about Shannon Vasconcelos.