Purdue University has suspended new enrollment in its revenue-sharing agreement program, a funding mechanism both hailed as a bold experiment to make the university more accessible and criticized as a predatory system that traps students in dubious and costly contracts.
Known as Back a Boiler, the program was quietly discontinued earlier this month, with a message posted on Purdue’s website around the same time Chairman Mitch Daniels announced his upcoming retirement and a successor was selected through a secret search process.
Purdue officials say the suspension of Back a Boiler is a technical matter, citing a change from one supplier to another that does not generate new revenue-sharing agreements but will continue to service existing ones. Critics, however, believe that the suspension of new registrations marks the death of the Back a Boiler program.
Other higher education watchers wonder what the break signals for the future of such agreements.
The Back a Boiler Experience
Launched in 2016, Back a Boiler has been hailed as a revolutionary new way to pay for education. The program, which Purdue has called an alternative to Parent PLUS loans and private student loans, was initially only available to juniors and seniors, then expanded to include sophomores.
The exact structure of revenue-sharing agreements, or ISAs, depends on a variety of factors, including the student’s chosen major and their projected earning potential. Typically, borrowers agree to repay a portion of their projected income over a number of years.
ISA providers have long maintained that their product is not a loan but an entirely different type of agreement. However, the Department of Education sunk this notion in March when it issued a clarification stating that ISAs are indeed private student loans. (A sample contract on Purdue’s website currently states that the Back a Boiler program “is not a loan.”)
Purdue’s website describes its revenue-sharing agreement as “an innovative new way to help make school more affordable for Purdue students” and “a potentially less expensive option” than traditional student loans, given that interest does not accrue on the amount borrowed through an ISA.
Since 2016, Purdue has signed more than 1,900 revenue-sharing agreements with students, disbursing $21 million backed by the Purdue Research Foundation, which solicits investors, including hedge funds, to provide money to Back at Boiler.
According to Purdue, the break resulted from its ISA servicing shift from Vemo Education to Launch Servicing, which does not provide support for the original ISAs.
“After Vemo left, [the Purdue Research Foundation] has been unable to timely identify a suitable successor who meets the high standards of PRF for ISA origination business in the upcoming academic year. PRF has therefore decided to suspend new ISA creations under Back a Boiler for the time being, while continuing to service ISAs already suspended under the program,” Purdue spokesman Tom Doty said. Inside Higher Education by email. “To be clear, nothing in this pause affects these existing ISAs. PRF’s hope and expectation is that as policymakers continue to provide greater regulatory certainty around ISAs and as new players of the market enter this space, more potential suppliers will be available to support programs such as Back a Boiler.
Doty added that Purdue is not actively seeking a fixer to create new ISAs because there is not enough time before the start of the next academic year.
But critics – who have complained to regulators that Back a Boiler is illegal and predatory – are skeptical of Purdue’s claims.
“They have their press release on how they moved from Vemo and now Launch doesn’t do origination. Bullshit. If they wanted to find an original partner, they could,” said Ben Kaufman, director of research and investigations at the Student Borrower Protection Center. “So the program failed. You mean it was an organic move when in fact they announced it at 4:30 on a Friday, the day Mitch Daniels quit?
Long critical of Purdue’s ISA program, the Center for Student Borrower Protection sent a letter to the Department of Education and the Consumer Financial Protection Bureau in March, claiming the university violated education law superior in “co-branding private loan products with student lenders,” among other issues, and calling for an investigation.
Purdue called the claims made by the Student Borrower Protection Center false and said it had not been contacted by the Department of Education or the Consumer Financial Protection Bureau.
The Department of Education did not respond to questions about Purdue’s ISA program, but a response from the CFPB set a sharp tone for questionable student loan products.
“There is a long and disturbing history of exotic financial products targeting students. The CFPB has taken action to combat predatory student loan products in the past and will continue to hold companies accountable for failing to comply with the Federal Consumer Finances Act,” the CFPB press office said in a statement. email to Inside Higher Education.
Recent Purdue graduates have also criticized the program, noting that their participation in Back a Boiler left them with massive debts and incompetent service agents who mismanaged their loan repayments.
The Opaque Future of ISAs
When Purdue entered the ISA market about six years ago, it was – and arguably still is – the biggest name to do so. The fact that he has now paused has prompted some high-profile observers to question the market potential for such deals.
Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, noted that despite the attention ISA programs receive, there are relatively few of them nationally. Although many colleges have shown interest, few have entered the market.
“For most schools, I think they viewed revenue-sharing agreements as experimental,” Draeger said, adding that many questions remain about the effectiveness of ISAs, including student outcomes, such as how graduates handle repayment and how low-income borrowers fare. in such arrangements.
Ethan Pollack, director of the Funding the Future initiative at the nonprofit Jobs for the Future, said via email that there was “no comprehensive data on the ISA market, we don’t So we don’t know exactly how big the ISA market is or how many students it serves. He added that ISAs are “more common for vocational programs than for traditional higher education programs.”
Beth Akers, an economist and senior fellow at the center-right American Enterprise Institute think tank, noted that Purdue was an early adopter of ISAs, which led to “very rapid growth” in the market, although she said colleges are still hesitant to embrace these funding mechanisms.
One of the reasons for the limited growth of ISAs, she added, is “open hostility” from lawmakers.
According to Akers, some prominent politicians, including Massachusetts Senator Elizabeth Warren, have sought revenue-sharing deals. Warren, along with Democratic Representatives Ayanna Pressley of Massachusetts and Katie Porter of California, wrote a letter in 2019 to then-Education Secretary Betsy DeVos questioning a Trump administration plan to experiment with ISAs.
“At a time when student debt stands at over $1.5 trillion, it is deeply disturbing to see a ministry official stimulating new forms of student debt instead of trying to stem the tide of indebtedness – and even more disturbing to hear the official offer to use federal taxpayers’ money to do so,” they wrote.
Akers — who has written about the possibility of replacing the federal student loan system with revenue-sharing agreements — suggested that the Department of Education under the Biden administration has also thwarted the growth of the ISA market by showing reluctance. hostility towards colleges contemplating such measures.
“The tone of the Ministry of Education in its communication on this issue implies a certain hostility towards the model. And I think even though there are benefits for an institution, for the students, it creates a lot of liability for an institution and a lot of headaches,” Akers said.
Critics of the ISA, such as Kaufman of the Student Borrower Protection Center, argue that revenue-sharing agreements are often confusing to borrowers and offer little transparency.
“On a case-by-case basis, ISAs have turned out to be much more complex than people think, much more expensive than they think, involving much tougher terms than people think, and actually not having many of the downside protections that people think they will have.. Instead, they very often [are] a linchpin of the fraudulent and fraudulent boot camp business model,” Kaufman said.
Observers on all sides are concerned about the lack of clear guidelines.
“Perhaps the biggest challenge is that it’s not at all clear how ISA providers must comply with existing consumer credit regulations,” Pollack said in an email. “The government needs to be clear about how it expects ISA providers to comply with the law, and until it does, ISA providers will continue to operate under regulatory uncertainty.”
Regardless of what the future holds for ISAs, experts suggest there is an appetite for alternative college funding mechanisms, in part because the current financial aid system is flawed. And when consumers have a bad experience, they end up looking elsewhere for better products.
“The reason revenue-sharing agreements have even impacted the student loan market is because of the dissatisfaction of students, parents, and schools, for that matter, with our current federal loan system. students. I am not one of those who see ISAs as evil. I don’t necessarily find them good. I see them as a reality and a market-based response to the general malaise and dissatisfaction that people feel with our current education funding system,” Draeger said.