Investors profit from cuts to education funding

It is not a coincidence that supporters of ISAs include people with a history of supporting cuts to public services to pay for tax cuts for large corporations and the wealthy. 

Ottawa (10 May 2019) — For students, cuts to funding for post-secondary education mean mountains of debt. For investors, it means a new opportunity to make money.

Under a scheme called Income Sharing Agreements (ISAs), university and college students receive funding to cover cost of their tuition fees in exchange for agreeing to pay a percentage of their income to investors for several years after graduation. These arrangements are being offered by a number of universities and private colleges in the United States as an alternative to government supported student loans.

While this privatization scheme is not yet widespread, bad ideas that allow the rich to get richer can spread fast.

ISAs distract people from cause of student debt crisis

In addition to allowing investors to profit from student debt, ISAs are also being portrayed as a solution to the debt crisis, even though the amounts people are paying are usually similar to loan payments. This reduces the pressure on governments to address the cause of the student debt crisis — governments underfunding education. It is not a coincidence that supporters of ISAs include people with a history of supporting cuts to public services to pay for tax cuts for large corporations and the wealthy.

Investing only one way ISAs allow wealthy to profit from the student debt crisis

Like almost all privatization schemes, there are opportunities for the private sector to make money by providing administrative or consulting services for ISAs. In fact, being the “middle man” in a privatization scheme is often a surer way of making money than being an investor.

There are already a number of companies in the US involved in setting up ISAs. One of the most prominent is Vemo Education, a privately-held company owned by hedge funds.

Like social impact bonds, ISAs allow investors to profit from the most vulnerable

There is a strong resemblance between ISAs and another dodgy privatization scheme, social impact bonds. Both are designed to allow investors to profit from providing a service for people in very vulnerable situations. Both are billed as a solution to government under-funding. And neither helps the most vulnerable.

With both ISAs and social impact bonds, investors want to make sure they get their money back. Investors in social impact bonds make sure they only support programs where people are likely to meet the targets. Funding from ISAs will go to students who are the most likely to be able to make substantial payments after graduation.

ISAs are the revival of a bad idea

The idea of ISAs originated with conservative economist Milton Friedman in the 1950s. It was his theories that inspired many of the more disastrous policies implemented by conservatives in the 1980s.