NEW YORK - American college students are turning to a new strategy to avoid the debt trap that has captured millions, pledging a share of their future earnings to pay for their education rather than borrowing.
It is thanks to an ISA that Paul Laurora will graduate on May 11 from Purdue University, Indiana as a chemical engineer. Through the ISA, the university has advanced him about $30,000, which he will repay with 9.6 percent of his salary for a period that will depend on his level of income. Students signing an ISA pay nothing but pledge to pay 10 percent of their salary for up to four years if they earn at least $40,000 a year, as much as 1.5 times the cost of their education.
Tonio DeSorrento, founder of Vemo Education, a company that helps schools design their own ISA contracts, said some institutions fund the ISAs themselves, while others use grants, endowments and"impact investors."But experts warn that this new funding system, which also exists in Latin America, is not a miracle solution. Some institutions may use them to attract more students, at the risk of fueling a surge in tuition and fees.
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