College is expensive. Really, really expensive. Even with scholarships and financial aid, most of us are left wondering how we are going to pull this off.
Of course, there are several ways to approach the issue:
1. We could go to Mom and Dad (assuming they could help in the first place, or that you want them to – this is a slippery slope to giving them more influence over our futures than some of us our comfortable with)
2. We could take out a loan (but that means lots of scary paper work, co-signers, and debt)
3. We could sell our virginity
3. We try out the newest trend: human capital contracts.
In my opinion the name sounds a lot scarier than it really is. It might just be me, but the words “human” and “contract” ooze creepiness and give me visions of living as a sex slave for the rest of my life. Fortunately for me, thats not the case here.
Human capital contracts are the newest resource in paying for higher education. Basically, investors (companies) would agree to pay for your education in return for a percentage of your future income over a fixed period of time which is scaled to your wages. Unlike loans, you are essentially using your education as collateral, betting on yourself and your abilities. Meaning the more you earn, the more the investor will take. The flip side being, the less you make, the less they are entitled to.
Of course, anything dealing with finance and debt and signatures makes me hyperventilate, so naturally I had some questions. The most important ones being, “What do I stand to gain?” “Why are investors interested in my education?” And, of course, “Will I end up chained to a radiator in the basement if I don’t get a job?”
Here’s what I found:
Human capital contracts are set up as a potential win-win for investors and students. The risk is transferred from students to investors but still draws investors in because they could potentially gain more than they would on a traditional loan (which earn investors money through interest charges). This idea could potentially open the market up, as it is no secret that in today’s economy loans are limited due to rising costs and government funding is rapidly being withdrawn. But with this new alternative more kids could finish college and become productive members of society.
Unsurprisingly, with any good idea there are some drawbacks. These drawbacks mostly surround investors, but students should be aware of what they are getting into as well. The biggest issue right now seems to be getting students who are potentially interested in higher paying jobs (doctors, lawyers, future millionaires etc.), to balance out lower income jobs (starving artists, writers, non-profits, and, um, me) because these are the students who will earn investors money. Admittedly, I was wrong with my whole sex slave theory, but critics are saying that this agreement resembles a form of indentured servitude because you are in some ways owning a piece of someone else… but the same could be said about traditional loan arrangements, right?
What do you think? Would you be interested in human capital contracts to pay for school?