How to pay for your education

This week economist Tyler Cowen wrote a Bloomberg piece on a new idea in education. Lambda school is a new startup that tries to somewhat level the playing field when it comes to education. Instead of paying tuition upfront students can opt for an income share agreement. Basically, they don't pay anything while they attend university but agree to pay a share of their income once they get a job. For example, Lambda school offers a scheme where you pay $0 upfront, and then 17% of your income for the first two years of your job (but only if you make $50k+). If you earn exactly 50k in your job after graduation, you pay $708 a month for 24 months, which makes a total of $17,000. One the one side, this is far less in total than students at private universities in the US pay in a year.  However, it's more in monthly payments than students pay on their student loans. 

Lambda's main objective is to make education about students finding well-paying jobs. They offer courses mainly for the tech-industry for which the required skills can be difficult to attain without proper education and coding classes can be too expensive for many people to afford. In this sense Lambda offers a great deal to students: they only have to pay if Lambda is successful in their mission. They even have a career development team focussed on advising students for the career market. 

Cowen talks about the idea of income-sharing agreements more generally. They offer a greater incentive for investments into students future. If the institution that is teaching you owns a share in your future income they have a greater incentive to properly educate you and make sure you actually do get a high paying job. With this type of equitization (in Cowen's words) students that earn more pay more in tuition than those who earn less. More importantly, this type of agreements opens the doors for talented and driven people from low-income background that might not otherwise be able to afford this type of education. Cowen also talks about the adverse selection problem he sees with this. Adverse selection is a situation in economics when one party has more information about their abilities than others. In this case, prospective students know more about their work-ethic and skills than does the university. If the majority of students are less hard working and might not find a high paying job this model could fail. Furthermore, what about careers in lower income fields, or where success is less likely?

For now, Lambda school offers only courses in tech-related industries and seems to work out quite well, for the school and its students. To see if this idea is truly successful and worth pursuing by more institutions will depend on the long term effects, but it's an innovative and new way to think about education, which is highly valuable in a time when total student loan debt runs as high as $1.56 trillion in the United States. Students shouldn't have to take on this enormous amount of debt and this new idea might change the system so that they don't have to.