America is in the midst of a student loan bubble. College costs are increasing, student debt is increasing, job prospects are far from assured, and loan delinquency is on the rise. It's a big problem. The best idea for a solution that I've heard in a long time: let people buy into college students. Like little indentured servants, but not really!
University of Chicago professor Luigi Zingales lays it out in a NYT op-ed today: instead of funding everyone's college education with debt that they may or may not be able to repay, let investors pay for the college education of promising kids. In return, the kid gives them a percentage of their future earnings (only the earnings above and beyond what they would have made without going to college). The lenders can pay the IRS a fee to do the collections. Students graduate without debt, and the amount they ultimately pay back is contingent on their actual earnings. It's a way for everyone to get in on a game that the elites have played for years:
In fact, top colleges like Yale are already - implicitly - using a form of equity contract. They charge the average student less than the average cost of educating each student, while financing the shortfall with donations from the wealthiest alumni. It is tantamount to an implicit stake on the wealthiest alumni's income. This system works very well for the top schools, which produce at least a few multibillionaires. It is much less effective for normal, middle-of-the-road colleges. It is precisely for these colleges that a formal equity contract would work best.
I like it.
1. The risk falls on the investor, who has money, rather than on the student, who does not.
2. It allows students to make a career choice without regard to an instantaneous need to start repaying loans.
3. Fuck Yale.