Dixie Returns to Campus
No, I am not making this up.
It is possible now, through the broad reach of capitalism, to indenture yourself to a corporation or investor by signing a “human capital contract,” where you promise a share of your future earnings in exchange for the corporate “master” subsidizing or paying for your college education.
It would work like this. Matt wants to be a lawyer, which means about 7 years of schooling. A company makes an agreement with Matt to fund his education, and Matt signs a binding contract to pay the corporation a percentage of his future paychecks for a set period of time. The company takes on the risk that Matt’s future payments will provide a nice return on its investment –and Matt gets an education.
I know, I know. My knee-jerk was: What! Where are the chains? That’s just like slavery. Appalling. Unconscionable, Dastardly(!). Etc. It bears watching when free market icons like the ultra conservative Cato Institute throw their support behind an idea. But…the idea grew on me. Is it any worse than owing $150,000 to a bank conglomerate after graduation? True, there is an undeniable “creepy” feel about it; but, really, what’s the difference?
The idea of capitalized servitude is that of the late Milton Friedman, a reknowned economist and erstwhile proponent of minimizing government interference in the private sector (well, we won’t blame him for that). The manifestation of the idea was brought about by a Colombian student who has created Lumni, which is the orginal “plantation” corporation for human capital contracts. It has been mostly active in Chile, Colombia and Mexico, though it will let its first U.S. contracts this semester. A U.S. version, My Rich Uncle, seems to have morphed to just another loan company, for reasons which are not entirely clear. According to the Boston Globe, Career Concept, based in Germany is also a big player in HCCs. It now “finances about 2,000 students at 180 universities in more than 20 countries, mostly in the EU. Typically, students are obliged to repay between 3 percent and 10 percent of their income over a period of between four and six years.”
While the risk to the student seems minimal (Matt has to pay the money back, whether to a bank or a corporate “master”), there is risk to the investor. What if Matt turns out to be a bum or an alcoholic, or (gasp!) a legal aid attorney instead of the high price corporate kind? His “return” to the investor would be adversely affected, as his income over the indenture period did not rise to the investor’s expectation and estimate. There are other ethical problems which seem obvious. Would an investor be interested in financing low-income students, or only the affluent? Why indenture an art student when a pre-med is on the market? Do the terms of your payment vary with your degree? Fascinating…and another avenue for you to explore.
So…what will it be for your son or daughter? Scholarship? Loan? Savings? Servitude? The choices have never been greater–or more interesting.
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{ 5 comments… read them below or add one }
Bill,
On the surface Human Capital Contracts might seem like a good idea, but your summary hardly scratches the surface of the potential drawbacks for both individuals and institutions of higher education.
The comparison to indentured servitude might seem like a stretch since the HC contract does not dictate where a person will work. However, it could radically limit a person’s life choices. Consider someone who decides, after several years in the workforce, to become a stay at home parent. If they have not yet fulfilled their contract, will they be able to choose not to work? In contrast, if someone with traditional student loans decides to quit work, they could make arrangements with a spouse or partner who would then pay the loan on their behalf. Such an option would not be available under these contracts.
Secondly, investors will determine a student’s future earning value based on what the student decides to study. This will impact financing of different fields of study as students realize they can get more loans by studying accounting instead of philosophy. Allowing the “free market” to determine the value of education could prove fatal to liberal arts education and the humanities.
Kathleen–You make many excellent points, though I think to state that free market influences could spell doom for the liberal arts is a bit of a reach. Universities have survived many transitions and upheavals with no loss of the influences of Kierkegaard or Joyce. And, as we discuss this, there are drastic changes in the funding of college education underway. Perhaps the real servitude comes after college regardless of funding choice.
It’s true there are creative ways to structure loans that avoid tracking students toward only the financially lucrative degrees. In Australia (where the government offers a version of Human Capital Contracts) courses in film theory and Victorian literature cost less than pre-med or business classes, so students who choose those areas of study end up with less debt.
All the same, I loathe to see a crude dollar amount assigned to different kinds of knowledge. As a general rule, you will earn more with a business degree than you will with a film theory degree, but the critical thinking skills you could acquire in the latter could make you an innovative business person, the kind of person who bucks tradition. But, if such classes were literally worth less, it might really discourage students from using their college years to explore new ways of thinking.
I just find it hard to believe that if college financing becomes dependent on students’ future earning power that it won’t impact the structure of the university. But perhaps it already does and I just don’t realize it! Thanks for your reply and for the blog!
If you don’t like this option, please make sure to compare it to the current option - debt or work study. This idea simply provides the option of an equity stake. And any business with no prospect of income over the next 4-8 years (as our hypothetical student) will gladly take equity investment over debt.
I really don’t find many drawbacks, especially when applied to a professional school context such as medical, dental, pharmacy, business, or law school where the graduates presumably want to go into a certain type of job anyway. Would it seem less like “indentured servitude” if there were pools of students and pools of investors instead of the one-to-one investor-student relationship?
The Cato Institute is not ultra conservative. It’s libertarian.