May 3, 2019

For education today, betting your income tomorrow

Photo: Flatiron School

Amid a political uprising against student debt, some colleges and skills schools are offering a tuition scheme in which students commit to paying a fixed percentage of their after-graduation salary for five or more years.

What's happening: The system, called "Income Share Agreements," responds to what many experts call a student debt crisis: some 44 million Americans now owe some $1.5 trillion, and most of the Democratic presidential candidates are calling for some form of free college or trade school, and debt forgiveness.

  • ISAs look a lot like loans, and typical terms result in students paying back 150% to 250% of the original tuition.
  • But loans have much the same results, and ISAs are missing a key downside to straight borrowing — you shouldn't be able to default on one because you typically only start repaying once you are employed and earning a certain minimum income.

Driving the news: In an announcement on Thursday, the Flatiron School, a data bootcamp owned by WeWork, said it will fund $100 million in ISAs to future students. Offered in WeWork offices and in online versions, Flatiron courses are $15,000 in tuition.

  • After graduation, you begin repaying the tuition at 10% of your gross salary as long as you are earning $40,000 or more. If you earn, say, $70,000 a year, you would end up repaying $21,500 over approximately five years.
  • "In any month they are not employed or earning the equivalent of $40,000 or more a year, they don't pay. With student loans, you owe regardless of if you work," said Adam Enbar, CEO of the Flatiron School.

The backdrop: The idea of promising a portion of your future income as a form of investment in your potential goes back to 1945, and a book by Nobel laureate economists Milton Friedman and Simon Kuznets.

Many experts call student loan programs a favorable aspect of the U.S. higher education system since they allow students to go as far as they can academically, all the way through a world-class doctorate. "If you are going for a master's degree, there is no limit to what you can borrow. You can do income-based repayment," said Kevin Carey, an expert at New America.

  • But many student also get in over their head, either from borrowing too much or failing to get a job paying enough.
  • So in 2016, Purdue University, reaching back to the Friedman-Kuznets idea, began a still-small trend among universities by offering ISAs to its students.

The bottom line: ISAs are not the answer to the student-debt problem. In a vocational school such as the boot camps, they offer financing for students who cannot afford to pay monthly. Experts say that, in most cases, loans are still the best option for financing college. "Because ISAs are a shiny object, it doesn't mean they are the best option," Carey said.

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Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 7:30 p.m. ET: 660,706 — Total deaths: 30,652 — Total recoveries: 139,304.
  2. U.S.: Leads the world in cases. Total confirmed cases as of 7:30 p.m. ET: 121,478 — Total deaths: 2,026 — Total recoveries: 1,072.
  3. Federal government latest: President Trump is considering a quarantine on New York, parts of New Jersey and Connecticut.
  4. State updates: Alaska is latest state to issue a stay-at-home order — New York is trying to nearly triple its hospital capacity in less than a month and has moved its presidential primary to June 23. Some Midwestern swing voters that supported Trump's handling of the virus less than two weeks ago are now balking at his call for the U.S. to be "opened up" by Easter.
  5. World updates: In Spain, over 1,400 people were confirmed dead between Thursday to Saturday.
  6. 🚀 Space updates: OneWeb filed for bankruptcy amid the novel coronavirus pandemic.
  7. Hollywood: Tom Hanks and Rita Wilson have returned to U.S. after being treated for coronavirus.
  8. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk
  9. Other resources: CDC on how to avoid the virus, what to do if you get it.

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Coronavirus updates: Deaths surge in Italy and Spain

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens and confirmed plus presumptive cases from the CDC

The novel coronavirus has since Friday killed 889 more people in Italy and 832 others in Spain, which announced all non-essential workplaces would close for two weeks.

The big picture: The number of deaths from COVID-19 surpassed 2,000 on Saturday in the U.S., which leads the world in confirmed coronavirus infections — more than 121,000, per John Hopkins. The number of those recovered from the virus in the United States passed the 1,000-mark on Saturday evening.

Go deeperArrowUpdated 24 mins ago - Health

U.S. coronavirus deaths top 2,000

Nurses in masks, goggles, gloves, and protective gowns at Penn State Health St. Joseph conduct drive-thru coronavirus testing in Bern Township, Pennsylvania on March 27. Photo: Ben Hasty/MediaNews Group/Reading Eagle via Getty Images

More than 2,000 people have died from the novel coronavirus in the U.S. as of Saturday, per data from the Center for Systems Science and Engineering at Johns Hopkins University.

Why it matters: Recorded deaths in the U.S. surpassed 1,000 two days ago. The U.S. has the most COVID-19 cases in the world, exceeding China and Italy.

Go deeper: Trump weighs quarantine of New York, New Jersey, Connecticut