About four years ago I visited Purdue University, a charter member of the Big Ten as well as one of the leading research universities in the United States, especially in the sciences and engineering. Last week, I read a USA Today story about an interesting approach to financial aid at Purdue called the “Back a Boiler” program.
Back a Boiler is a different way of covering, then repaying, the costs of a college education when there is a gap between need and financial aid. Currently, the university is funding the program, though it hopes to attract private investment to grow the pool of money that would be available to lend.
Back a Boiler is neither a supplemental student loan such as Parent PLUS or a supplemental grant that does not need to be repaid. It is an Income Share Agreement where a Purdue junior or senior agrees to repay debt over nine years with an agreed-upon percentage of their income. The interest rate is tied to the student’s major and expected starting salary, the year the student entered into the agreement, and prior loans that the student has received. The agreement carries the same grace period as student loans. Repayment must begin six months after graduation.
There are advantages to the recent graduate. If s/he has not found a job within six months, then s/he pays nothing. Fortunately, Purdue graduates who are serious about going to work find work. Purdue has one of the best career development centers among US colleges and universities. Six years ago, recruiters who do entry-level hiring ranked it fourth in a Wall Street Journal survey, behind only Penn State, Texas A&M and the University of Illinois at Urbana-Champaign. Purdue also has one of the largest cooperative education programs in the country for business, engineering and technology students as well as one of the largest ROTC programs. More than 60 percent of Purdue undergraduate degrees granted in 2013 were in business, health sciences or science/technology/mathematics/engineering (STEM) subjects, according to College Results Online. It is fair to say that a Purdue student might be a “less risky” investment than students who attend many other colleges.
However, Back a Boiler does carry risks. It is a supplemental debt program, a debt beyond a Federal Stafford Loan. From a distance, it makes Purdue appear to be a more affordable institution than other schools that would direct a family to ParentPLUS as a way to cover gaps between aid and need. However, home equity loans might offer lower interest rates to fulfill the same purpose. Further, the minimum amount that a student may borrow is $5,000. Imagine being a graduate with at least $37,000 in debt, the amounts borrowed through Back a Boiler as well as the amount borrowed in Stafford Loans.
A better strategy might be to find a school that will leave your family with a smaller gap to close. Purdue has actually done a good job of keeping the gap as small as possible. According to the university’s 2015-16 Common Data Set, Purdue met, on average, 86 percent of need for the full undergraduate student body. Twelve percent of the undergraduate student body received merit scholarships that averaged just under $6,600 during the 2014-15 academic year. A merit scholarship recipient from Indiana would have paid less than $6,500 in tuition and fees to attend Purdue. S/he could have done far worse cost wise. A non-resident who qualified for the aid–about a third of Purdue students come from outside Indiana–would have done okay as well. Their tuition and fees would have been less than $22,000 before other aid kicked in. And it would have been the same the next year. Purdue did not increase tuition and fees between the 2014-15 and 2015-16 academic years. However, the university has not graduated its students at rates as high as families might like. Purdue’s most recently reported four-year graduation rate was 47 percent for students who entered in 2009.
Purdue can initiate Back a Boiler because it is a unique university. Given the number of options that Purdue offers to help students finance their education as well as cooperative education and ROTC, the Back a Boiler program can succeed as long as the supplemental debts as kept to a minimum. It costs approximately $325 a month to repay $27,000 in Stafford Loan debt. This is the maximum that a liberal arts major should ever borrow, especially if s/he plans on further education. But that does not mean that an accountant, computer programmer or engineer should take on much more debt. It would keep these graduates from saving for their future as well.
Would other colleges try this? Its doubtful that many will follow Purdue’s example, unless they are similar to Purdue.
Purdue has many pre-professional majors as well as clear strengths in math and the sciences. It is also a very well endowed university with a large alumni base. Only 171 colleges can boast endowments of over $500 million, according to the National Association of College and University Business Officers; only 94 have endowments of $1 billion or more, Purdue being one of them.
Among the well-endowed public colleges Georgia Tech would be best positioned to follow Purdue’s lead in offering an Income Share Agreement similar to Back a Boiler. Georgia Tech’s academic and career development strengths are similar to Purdue’s. The Atlanta school also has half as many students to assist while Georgia is one of the more generous states when it comes to merit-based financial aid. “Back a ‘Jacket” also has a nice ring to it.