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Rubio: “So our notion is what other options to the student loans can we create? And here is an existing model that now exists that’s called Income Share Agreements. …As I said, like all investment decisions, there is an element of risk here associated with it. But it creates an alternative to the traditional student loan system that we have in place, which in my mind, at its current pace is simply unsustainable in the long-term.”

Senator Marco Rubio
CNBC’s “Squawk on the Street”
April 9, 2014
http://youtu.be/21J1vvIWfYg?t=1m29s

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CNBC’s Carl Quintanilla: “Talk to me about student loan debt. We got some consumer credit numbers earlier in the week, and households are not spending on credit cards. It’s all about college costs that’s driving this up. What’s the solution?”  

Senator Marco Rubio: “Well, first of all, let me say that I come at this from a personal perspective. I owed over $100,000 in student loans the day I swore into the Senate just three years ago. So I’m keenly aware of and sensitive to it. At one point in my life, it was the single highest expenditure in our personal budget. What’s happening now is in the 21^st century, all of the higher and middle-income jobs will require some level of higher education, but it’s become so expensive. And so a growing number of students are taking on exorbitant student loan debt, and when they graduate they’re not making enough money to make those payments and it’s deterring them or holding them back from starting a family, buying a home, getting on with their lives. It also limits flexibility in terms of what kinds of jobs they can take, or even entrepreneurial activity.

“So our notion is: what other options to the student loans can we create? And here is an existing model that now exists that’s called Income Share Agreements. A student goes to an investment group and says, ‘Here’s who I am, here’s my resume, here’s my transcripts, here’s what I want to graduate in. Will you invest in me? And when I graduate, I promise, over a defined period of time, to pay back a certain percentage of my income.’ For the investment group, they may make a lot more money than they invested in the student. They may lose. That’s the risk they take. For the student, they may end up paying more than what they would have, but they may end up paying a lot less. So the bill is designed to create a legal framework so we can encourage more entities, more investment groups to step into this field and help people with an alternative to the college loans that we currently have.”

Quintanilla: “So, the danger that a student graduates and changes fields, I don’t know, remains unemployed for a long time, that’s just sort of the risk that the investor has to deal with at the front end?”

Rubio: “Yea, that’s right. But that’s no different than an investor that decides to invest in a company or in an idea and provide funding and capital for that to start up. You’re obviously investing in an individual. Now, not everyone, I think, is going to be an ideal candidate for this. My guess is that you will likely see this more often than not in a graduate level, people going into the STEM fields or medicine or some other profession where there is certainty for the investor that, that person is going to find a job and make sufficient money to make their payments. But, as I said, like all investment decisions, there is an element of risk here associated with it. But it creates an alternative to the traditional student loan system that we have in place, which in my mind, at its current pace is simply unsustainable in the long-term.”

CNBC’s Simon Hobbs: “But Senator, isn’t it more likely that you’re going to cream off, or those investors are going to cream off the best every year and the rest will be left to flounder as they are? And in fact, you’ll reduce mobility within the system, if anything?”

Rubio: “Well, I’m not sure that’s the way it would play out. First I would say, for what you describe as the best, the high GPA students and so forth, they’re probably already disproportionately getting their share of scholarship and private funding for their education. Second, I do think it will likely reward those who are going into fields that are highly compensated. And, in fact, will serve as an incentive for more students to graduate with degrees that are ultimately turned into employment. As opposed to a large number of students now that are graduating in fields that don’t lead to jobs. And that’s a real problem in our country as well. I have another bill that deals with that. It’s called [Student] Right to Know Before You Go, and what it says is that before a student takes on a student loan the institution has to tell them, ‘Here’s how much graduates from our school, with this degree, can expect to make when they graduate,’ so that students can make an informed decision about whether taking out that loan is the right thing to do.”

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