Everything old is new again at the Boston Globe. Rebecca Tuhus-Dubrow writes:
The result is an innovative way to think about paying for higher education. The idea, sometimes called human capital contracts, is that investors agree to cover the costs of college or graduate school in return for a percentage of the students’ future earnings over a fixed period of time. Since payments are scaled to wages, the odds of default – and of financial hardship for the graduate – are greatly reduced. This scheme transfers much of the risk from students to investors. But if the students earn handsomely, the investors stand to gain more than they would under a traditional loan.
This forms a relationship of debt between the student and the investor, allowing investors to profit off the labor of several students in exchange for giving them access to higher education. Rather than an innovative stroke of economic genius, it is an odious jerry-rigging of a broken education system to further cement the idea that education, a public service, is in fact a private commodity.
The contracts could offer a new way for students and their families to handle the burden of postsecondary education bills. In recent years, rising tuition costs, combined with limits on federal loans, have increasingly forced students to resort to private loans, which have markedly higher interest rates. The challenges of paying for college promise to intensify during the economic downturn. Disruptions in the credit market have caused turmoil for student borrowers, while diminished endowments may force many colleges to jack up tuition rates even higher. Constraints on the federal budget will limit the options of President-elect Obama and the next Congress, regardless of their plans to aid students.
What we should question is why higher education isn’t provided to the public like k-12. Now that would be an innovative investment.