Guarantee programs address the fundamental problem in higher education finance: risk
NEW YORK, NY — As Democratic presidential hopefuls propose ideas like free college and student debt forgiveness, a more targeted approach to the problem of risk in higher education is taking root in schools across the country. Rather than simply wiping away the cost of college, guarantee programs ensure that the investment in college pays off—and when it doesn’t, the school is on the hook to pay. In a new Manhattan Institute report, senior fellow Beth Akers explores what these money-back guarantees mean for the future of higher education and examines new focus group findings that show how students respond to these programs.
While much of the focus in higher education finance is on cost, Akers argues that this distracts from the root problem: risk. While for many students the investment in college pays off, it is possible that a graduate’s earnings will not be sufficient to justify the expense. Guarantee programs mitigate this risk. They take several forms, including income-share agreements (ISAs), employment guarantees, and on-time graduation guarantees. If the program fails to deliver for a student, the institution takes on some or all of the cost. Today as many as 120 undergraduate campuses are offering a loan repayment assistance program.
In order to better understand how this type of program is perceived by students themselves, Akers conducted focus groups with the help of researchers at Mathematica. Among the participants, there were differences of opinion on how the programs should be funded, and students at technical schools were less interested in guarantees than their traditional college counterparts. But overall, participants recognized the inherent risks of the higher education system and responded positively to the idea of a guarantee program.