Income-sharing agreements let students trade future earnings for investment

Well my background is engineering and they're are some nice quite schemes in the UK where they'll sponsor you during university. It works like this: They give you cash towards tuition fees and living expenses. In return you pick some pre-approved courses (relevant to their industry) do an internship over the summer each year, and then they have the option to employ you after you graduate (they can reject you, but if you reject them you repay something towards the scholarship). That sounds much more sensible - but it's not a private equity concept, it's a HR recruitment strategy.

Great.. why don't we just call ourselves the new digital serfs?

Definition:

1. A person in a condition of servitude, required to render services to a lord, commonly attached to the lord's land and transferred with it from one owner to another.

2. A slave.

It would be hilariously unenforceable because people would just put off getting married on paper until the term of the payments is up. For couples with highly disparate incomes people already do this to take advantage of income caps for state provided healthcare.

There’s lots of things to reasonably debate about this. This is already an accepted practice for coding boot camps like AppAcademy, which I attended. At the time I couldn’t get a good job and was running out of savings. I was an adult cleaning golf clubs with high school students. Couldn’t get anyone to even look at my resume. AppAcademy’s application was purely merit based, they just wanted to know you could solve problems and think. After the program you pay 15% if your income for the first year, if you could get a job that paid over 50K a year.

I got in. I remember I was telling some millionaire member of the club what I would be doing and he told me that he thought that was illegal and they were ripping me off. I genuinely liked most of the members, but I really wanted to tell that guy some very rude things.

It changed my life. By the next spring I had a great job I loved that was paying me way way more than the golfing club. I had to pay 30% of my first 6 months instead of 15% over the full year, which is tough after taxes. Take home pay was like 45% of my paycheck. But even during that first 6 months I was making way more than I would have otherwise. I’d do it again in a heartbeat.

Bottom line, I got a chance I wouldn’t have gotten otherwise. There’s plenty of ways to take advantage of desperate people. The term could have been longer, the rate higher. It could turn into a type of slavery. But if these things are limited in some way they can be a good thing. Especially if they time out, and are subject to you actually being paid. Then they are better than most other loans, and the people who you owe have interests that are slightly more aligned with yours.

That program has changed a bit since I went through. Also, I think the biggest drawback was I was expecting them to really help me get a job, but it was more throw us all out there and see who sticks. So, probably much less ideal in fields without the same insatiable demand for workers.

When suggesting trying to solve the problem, I'd first consider what caused the problem. It obviously was not always this way. The stories of people in the 50s and 60s working their way through college with a part time job and then graduating not only not in debt but even with a little bit set aside for a down payment on their first home are not just stories. That was a real thing.

So what happened? We decided that it would be a good thing if anybody could go to school without having to pay for it immediately. It's a pretty well intended motivation. And so how did we do this? We tried to solve it through regulations. The idea was pretty straight forward. To help ensure anybody could afford to go to college the government would give loans unconditionally, aside from financial need. To try to ensure people wouldn't just take the money and squander it, the law was adjusted to prevent these loans from being able to be dismissed in bankruptcy.

And indeed college attendance shot up after these laws were passed. But this did two things. It sharply increased the demand for post-secondary education, and it also increased the supply of money available to pay for it. Predictably costs started to gradually rise. And so as this happened, it began to be that government loans alone were no longer sufficient to ensure everybody could go to college without having to immediately pay for it. And so we now did the exact same thing with private loans - they could no longer be dismissed, which meant that from a lender's perspective, giving a loan was practically free money.

And we've seen what happened here already. Costs skyrocketed since there was now an effectively unlimited amount of money that students could borrow. The only reason costs stopped accelerating as fast is because we reached 'peak college' in 2010-2011 with enrollment figures with enrollment continuing to decline since then in spite of an increasing population.

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The point I'm making with this is that the one and only reason we're in this situation is because of well intended regulations. It's easy to say just "regulate out of existence exploitative student loan conditions" but things like this are far easier to say than do. For instance, as you make loans less profitable for lenders, they end up becoming more selective on who they lend to. In turn we end up going back to where we started where college is no longer something for everybody. And in my opinion this is probably the right direction, but at the same time I think many people would disagree with this. If you happen to be one of these people then you end up in this tough situation of trying to create a system where lenders can/will lend to people who they probably should not be lending to. Getting a degree in underwater basket weaving isn't going to likely lead to a life such that one could repay years of debts taken on to obtain such a degree, even if the cost of education was relatively "affordable."