As more students balk at the debt loads they face after graduation, Norwich University has joined the growing list of colleges offering to cover the tuition of students who agree to pay the school a percentage of their future salary.
Known as an income share agreement, Norwich’s program is mainly for students who do not have access to other types of loans or those who are taking longer than the traditional eight semesters to finish their degree.
“Norwich University is committed to offering this new way to help pay for college in a way that aligns incentives and helps reduce financial barriers to degree completion,” said Lauren Wobby, the school’s chief financial officer and treasurer.
In contrast with traditional loans, in which students will simply pay down the principal and interest until there is nothing left, students with income share agreements pay back a percentage of their salary for a set period of time. Those touting the programs say they give colleges greater incentive to help students find high-earning jobs after graduation, because a higher salary means the school may recoup its investment in a shorter period of time.
For some students, income share agreements are seen as less risky, especially if they end up in a lower-paying job or struggle to find work after graduation. While students are unemployed or earning below a certain threshold they don’t have to pay anything back.
Income share agreements were first proposed by Milton Friedman in 1955, and Yale University briefly experimented with the idea in the 1970s. In the past decade, technical training programs, such as coding boot camps, have used this type of funding largely because participants do not have access to federal student loans.
The terms can vary, notably the length of the agreement and the salary percentage. Since future salary is generally unpredictable, it can be difficult to forecast how much a student will pay back over time, although most agreements do place a cap on the amount paid back.
Norwich University is working with Virginia-based Vemo Education to develop its income share agreement program. The company works with nearly 30 public and private colleges and universities across the country.
“The schools are doing it now because they want alternate financing models,” said Vemo CEO Tonio DeSorrento.