But there remain questions about whether ISAs are sustainable in the long run.
Purdue’s Mitch Daniels, who believes the university’s program could be a national model, notes that the program is still small, and the exact financial formula needed to make it work is still to be determined.
“For this to become a viable additional option … we need scale,” he said. “And we need other schools and many more students participating so that the marketplace of potential investors sees repayment history and we all learn more about how well this works.”
Purdue’s program is funded through the university’s research foundation with support from private investors.
Also a concern: The programs are mostly unregulated, unlike traditional student loans. While both Purdue and Lambda School offer upside and downside protection for students, there is nothing to require that.
The programs also do not tackle the underlying issue: that college tuition is rising at roughly twice the rate of inflation. While Purdue has managed to freeze tuition for seven years in a row, the average net cost of a four-year public university has risen 30 percent over the past 10 years, according to College Board.
“Quite honestly, the single biggest thing that could happen is if other schools are careful about what they charge in the first place,” Daniels said. “You never have to borrow money you weren’t charged.”