Payment Terms

What the people, Purdue, are saying about the controversial program

For years, Purdue University has touted its Back a Boiler program as an innovative alternative to student loans, but a watchdog group says the way Purdue operates and markets the program may be illegal.

In March, the Student Borrower Protection Center sent a letter to the US Department of Education, asking it to investigate the program and immediately end what it called an “illegal loan program” and repair injured borrowers. Purdue denied the allegations of wrongdoing.

To date, more than 1,600 Back a Boiler contracts have been signed by Purdue students. IndyStar spoke to five of them who say they feel taken advantage of and misled.

Returning a boiler:Students feel duped by Purdue’s loan program. Could this be illegal?

What is the Back a Boiler program?

Back a Boiler is a revenue-sharing agreement launched by Purdue University in 2016. Beginning in their second year, students can apply to the program to help defray Purdue attendance fees.

Students sign a contract that promises a share of their future earnings in exchange for the loan, which is paid by one of two limited liability companies. LLCs are funded by a variety of investors – institutional investors like hedge funds and individuals.

Funding levels start at $5,000 for a semester or $2,500 for a summer session. The terms of the agreements vary depending on the major and the amount requested, but they typically last eight to 10 years and require students to contribute about 5% of their earnings. The program peaks when a student commits 15% of future earnings.

What is a Revenue Sharing Agreement?

Purdue isn’t the only school to offer ISAs. The concept has been around for decades but, in the modern age, they are more common in non-degree, for-profit entities such as computer coding bootcamps.

Revenue sharing agreements are when a student commits a future share of their earnings in exchange for a portion of their educational costs.

Typically, the contract lasts for a set number of monthly installments or a maximum payment amount. While some programs guarantee that students do not repay more than they borrowed, most cap payments beyond the original ISA contract amount. In the case of Purdue, the contracts generally cap at 2.5 times the amount borrowed.

Thus, a student who borrows $10,000 would pay the agreed share of their income for the specified number of months or until they repay $25,000, whichever comes first. At the end of the term of the contract, a student’s obligation is fulfilled whether or not they have repaid the money they borrowed.

Are ISAs loans?

Yes. While ISAs are often marketed as an alternative to loans, the Consumer Financial Protection Bureau has stated that ISAs are private loans.

How are ISAs different from traditional loans?

Traditionally, loan terms include a principal amount borrowed and an interest rate. Borrowers repay the loan with interest until the balance is paid off. With an income-sharing arrangement, payments are based on a percentage of the borrower’s future income and made for a set period of time, meaning they can repay more or less than they originally borrowed .

In cases where students are struggling to find work or are starting out with a low-paying job, the ISA could be beneficial as payments can be suspended when students are out of work or earn too little. For students who want to pay off their loans sooner, however, ISAs like Back a Boiler come with a significant prepayment penalty, as they can only end the agreement early by paying off the cap. maximum payout.

What are people saying about the Back a Boiler program?

The Student Borrower Protection Center, a watchdog group, says the way the program is run and marketed is illegal. The nonprofit organization asked the US Department of Education and the Consumer Financial Protection Bureau to get involved.

IndyStar spoke with five students and their families who say they feel duped by the program’s marketing and now feel exploited by the university and call some predators.

Several families said they would have preferred to take out private student loans instead, as they would have been able to repay the amount borrowed, plus interest, faster and at a much lower cost.

One student called it a “scam” and another said she felt stuck.

A student IndyStar spoke to said she was happy with her Back a Boiler ISA because she liked knowing she would be done paying it back in 10 years and expects to pay longer on more. other private student loans.

What does Purdue say?

Purdue denies allegations of wrongdoing with the Back a Boiler program. In its response to IndyStar, Purdue said “transparency and ISA literacy are hallmarks of Purdue’s Back a Boiler program” and that the process is designed to ensure students make an informed decision. Participants must also pass a quiz before entering into an ISA contract to check their understanding.

Call IndyStar education reporter Arika Herron at 317-201-5620 or email her at [email protected] Follow her on Twitter: @ArikaHerron.