Statement to an article of the german Handelsblatt from the 15th of August 2018 on commercial education funds.
The newspaper commented on a legal dispute between a former student and the Festo-Bildungsfonds and cited two court rulings of that matter (Landgericht Aachen, AZ 10 O 483/15 und OLG Köln, AZ 16U139/16). The Handelsblatt also mentioned three other commercial Educational funds in this context.
The newspaper did not mention CHANCEN eG, which was founded in 2016 or the Student community Witten/Herdeke e.V. from the University of Witten/Herdeke that founded this concept of Income share Agreements in 1995. Amongst these two providers, the ISA model has been executed successfully, without any conflicts or legal disputes. On a legal basis, both models are almost exactly the same.
About the points of criticism in specific:
- The Criticized Educational Fund F. did not inform the student sufficiently about the upcoming interest rate and the repayment amount.
The documents and contracts of CHANCEN eG inform clearly about the repayment model. After her/his studies the student pays back a percentage of his/her achieved income to CHANCEN eG for ten years. The percentage depends on the subject of studies, duration of education, and the covered tuition fees. The average is 8,9% over 10 years.
The repayment depends on income-levels: it is possible to pay back nothing, significantly less and significantly more than the loan.
CHANCEN eG has an income threshold that stands by 21 thousand € per year after deduction of social security payments. If this requirement is not fulfilled, there will be no repayment during that year. The maximal duration of possible repayment time is 25 years. The reason for lower or no income is of no relevance.
Part of the contract of CHANCEN eG are the calculation examples that inform applicants about possible income and repayment flows after finishing their studies.
In addition, the calculation of the effective interest rate is identified so that the ISA can be compared with a bank loan. The examples and conditions, as well as the resulting repayment obligations, are discussed in detail with the applicant during the mandatory interview. Furthermore, all conditions are mentioned in the consumer protection annex in the contract.
- The commercial educational fund F. could be a business that stands in conflict with moral principles and stands the danger of usury. There is a clear disparity between performance and return service.
At CHANCEN eG the maximal repayment amount is clearly stated at 200%* max of the originally financed fees plus an inflationary balance.
The ISA model is based on the solidarity principle. If a few students don’t pay back anything and a some are only able to repay parts of the loan, then other financially more successful students have to pay back more. Otherwise, the lack of reflows would ultimately interfere with the financial sustainability of the concept and it could not survive.
The conditions of ISA are calculated in a way in which the lower repayment and the higher repayments balance each other out. In the calculations, there is an expected 5% that will not pay back and a very few that will reach the maximum repayment amount. Most students are in the “statistic average” between both extreme situations.
- It is not possible to understand the repayments without asking a legal expert (regional court about educational fund F.)
The above-explained calculation examples give an impression of repayments and the range in which it can take place (from a small repayment amount to a very high repayment). In addition, all conditions are listed in the consumer protection information in the annex.
- The repayment of the commercial education fund F. exceeds the market price. The market price stated by the court is 5,28% for a duration of 5 years according to EWU-statistics.
The EWU-interest rate statistics does not offer an appropriate comparison since the financing model of ISA holds an average duration of 13 years.
CHANCEN eG calculates with an intern interest rate of 5,5%.
- Other commercial educational funds hold a “part-time trap” in their contracts in which a lower part-time salary is projected onto a full-time income.
This clause does not exist at CHANCEN eG. The repayment only depends on the
achievement of the threshold of minimal income (21 thousand € after deduction of social security payments). Which means that if the minimum income is not reached in one year there will be no repayment.
- The contract content of commercial educational funds contradicts the claim of fairness and solidarity.
CHANCEN eG stands for fairness, solidarity, and transparency. Maximization of profit is not a goal of the cooperative. Hence it informs as transparent as possible about the ISA model and explains pro and counter arguments openly and provides calculation examples.
For this CHANCEN eG is very much valued by third parties. Its Income Share Agreement is rated as the fairest amongst all commercial educational funds by portals that represent students interests. (see studis-online.de)
*There are two courses of studies, BA and MA Architecture at Alanus Hochschule, where the max repayment is 300%. Reason for this decision is the high variation amongst architects salaries. By making high earners repay up to thrice the fees, CHANCEN eG was able to lower the repayment percentage for architecture students overall.
