Student financing plan payment comparisons

The Back-a-Boiler website shows a comparison of the estimated amount of the total payments between different types of loans.

Student loans can be difficult to pay off. Purdue alumna Amy Wroblewski learned this the hard way.

Wroblewski, a class of 2018 graduate from the Krannert School of Management, was a first-generation student. Paying for school was all up to her, she said, and she had no idea what she was doing.

She ended up taking out loans from Sallie Mae, a company that offers students loans, but she said the interest rates were extremely high.

During her sophomore year in 2016, her dad told her about a new loan program at Purdue called Back-a-Boiler. Not long after, she saw a story about it in The Exponent and sent in her application that spring.

Back-a-Boiler is an equity-style income share agreement (ISA) launched in Purdue in 2016, Mary-Claire Cartwright, Purdue Research Foundation’s chief information officer, said.

In an ISA, students pay a portion of their income back to the university for a set period after graduation, according to the BAB website. There’s no balance, no interest and no full payback requirement.

“It’s great because there’s no interest rate,” Wroblewski said. “I had two loans with Sallie Mae. By the time I graduated, I owed over double of what I took out.”

The payment percentage for BAB is determined based on the student’s major and alumni’s reported earnings in that field, Cartwright said. The average rate is between 2.32% and 4.58%, and borrowers are capped at committing 15% of their income. After the six month grace period post-graduation, participants make between 84 to 116 monthly payments over the course of 10 years.

The downside protections worked into BAB are what make it different from traditional private or government loans.

Participants who are unemployed can pause their payments for up to five years, and when a participant makes less than the $20,000 minimum annual income, participants don’t pay. Yet this is still counted as a payment.

“We’re shifting the risk from the students to us,” Cartwright said. “If the world doesn’t see a Purdue degree as valuable, Purdue takes that risk.”

Several national leaders have raised concerns about ISAs and the lack of results.

Democratic congress members Elizabeth Warren, Ayanna Pressly and Katie Porter wrote a letter to then-Secretary of Education Betsy DeVos in 2019 saying ISAs are potentially dangerous to students.

“(ISAs) carry many common pitfalls of traditional private student loans — with the added danger of deceptive rhetoric and marketing that obscure their true nature,” they wrote.

Among their chief concerns are that borrowers who make just above the minimum income will still have to make payments. They reference BAB’s $20,000 income minimum specifically.

“Yet, a student who makes just over that threshold could be required to pay 5% or more of their income toward the ISA — a precarious situation for anyone, particularly someone with children or other obligations like medical expenses,” the letter reads.

Hannah Cooke, a fifth-year senior in the College of Health and Human Sciences, signed a contract with BAB. She said she’ll start sending out resumes to hospitals for a nurse position soon. Eventually, she plans to work part-time, so she can go back to school to become a nurse practitioner.

Cooke took out an ISA loan to supplement her government loans. Aside from the communication with Purdue staff about her contract, her experience hasn’t been so different between the two.

“I’ve had questions a couple of times, and (they) always got back pretty quick,” Cooke said. “It’s good. Can’t complain.”

Wrobleski agreed.

“(The communication) is entirely different from private loan company customer service,” Wrobleski said. “Do you want to wait all day?”

However, Cooke doesn’t like that she will be locked into payments for 10 years.

“I don’t want to graduate owing people money,” she said. “I like that with government loans I can pay them back quickly. I couldn’t pay Back-a-Boiler back immediately unless I paid a huge, inflated amount of money.”

This echoes another concern brought up in the letter to DeVos.

Any borrower that withdraws or defaults on the loan will be required to pay two-and-a-half times the original amount, according to the sample contract on the BAB website. A borrower would default if they don’t make full payments for nine consecutive months or don’t provide adequate income documentation on time.

“The consequences of default in the ‘Back-a-Boiler’ ISA program belie the notion that their ISA is preferable to a federal student loan,” they wrote. “In other words, the ISA conversion costs more than some of the most burdensome, predatory and costly private student loans.”

Wroblewski said she might end up paying more than she took out, but she doesn’t mind since it’s all going back to Purdue and not a private loan company she doesn’t trust.

“Sallie Mae sucks all (your money) from you,” she said. “I want to give it to my alma mater. I’m still happy Purdue is getting my money. I don’t care if I pay more.”

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