Current Employment Trends and Their Implications for Business, Society, and Individuals
February 12, 2025
Skills, Experience and Performance This is the basic determinant of the pay that is given to an employee. This is the entry-level criterion wherein the skills of the employee are first determined and the pay fixed accordingly. Next, the performance of the employee during the appraisal period forms the basis for the salary hike and […]
Participative management as a decision making style is not welcome by one and all! Labor or trade unions, for example do not approve of this. They argue that it is in fact disadvantageous to welfare of the workers because the participative processes give deep insights to the management, which in turn puts the latter in […]
How do you define social exclusion sometimes practiced at workplace with people of color or minorities which technically falls within the ambit of individual preferences? So if the manager does not extend an invitation to go golfing to all members of the team, how can you conclude it is a matter of discrimination rather than […]
Absenteeism and its Perils Absenteeism or taking leave from work is a growing problem for many organizations that have to deal with the loss of employee time and productivity which then result in decreased earnings and revenues for these organizations. While legitimate leave of absence from work is usually taken as the norm and is […]
The Case for the Importance of the HRM Function even in Recessionary Times In these recessionary times, it is tempting for the companies to cut the budgets of the HRM function and focus on cost control and trimming as a means of profitability. Further, with the squeeze on hiring by many companies, one of the […]
American students have been burdened with student debt. Much has been read and written about the mountains of debt that American students face. These decisions are made by students, who are young adults and do not really have the financial knowledge required to make such an important decision. Several of these students ended up being trapped in student loans for decades. A lot of these loans are backed by the government which means just about anyone can get them. Also, these loans cannot be discharged under bankruptcy. This means that the student does not have any way to get rid of them in the future.
The concept of income sharing agreements is the new financial innovation which is gaining popularity amidst the ensuing student loan crisis. In this article, we will have a closer look at the pros and cons of income sharing agreements.
Income sharing agreements are an alternate way for American students to finance their college education. Instead of taking a student loan to finance their college education, they could opt for equity funding. Income sharing agreements are, therefore, a way for college students to transfer their risks to the lenders.
The cash flow remains the same. If the student needs $10,000 to fund their college education, they can obtain the same from investors. However, they do not have to pay fixed payments to repay that loan. In fact, it isn’t a loan at all. The investors are buying a percentage of the future earnings that the student will generate by undertaking the course. Typically students are allowed to keep the first $20,000 that they make for personal expenses. If they make more than $20,000, they are expected to pay 7% of their income to the lenders. The terms of this agreement may vary, but most agreements are drawn for a period of 10 years.
If the student earns a good amount of money, so do the investors. Otherwise, they make a loss too! However, there is a cap for the max amount that students will pay back to investors. Hence, high flying students who grow very fast in their career will not end up paying through their nose when they become part of an income sharing agreement.
However, it must be understood that this agreement is not regulated by the government. Hence, once the acceptability of these agreements increase and more students opt for this arrangement, investors might start entering fine print into these agreements. Analysts have warned that, if left unregulated, income sharing agreements have the potential to become the indentured slavery of today.
In conclusion, income sharing agreements are better than student loans in many aspects. However, the market is at a relatively nascent stage. Only a handful of universities have started adopting this model of financing as of now. Once the use of income sharing agreements becomes more widespread, it would become possible to ascertain their advantages and disadvantages more accurately.
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