Home News Taking a cut of student’s future paychecks has Silicon Valley investors funding education – Quartz

Taking a cut of student’s future paychecks has Silicon Valley investors funding education – Quartz

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The first experiment was a failure. In the 1970s, Yale University offered tuition to a group of students in exchange for a percentage of their future incomes. Adapting a 1955 idea by economist Milton Friedman to sell “human capital investments,” the university paid the students’ tuition. In return, the university hoped to recoup its investment by having the group collectively repay it as a share of each individual’s income.

It didn’t work out. Low-earners paid back at different rates than high-earners, leaving frustrated students holding the bag for others. It was, in the words of one higher-education policy expert, “an utter disaster.”

After lying nearly abandoned for 40 years, that former disaster has reemerged in a financing model called modern income-sharing arrangements (ISA), which aim to fix some of the earlier flaws posed by similar arrangements (students pay back their own commitments out of future earnings, for one thing). The model is attracting a new generation of startups, as well as investors, eager to bail out American students drowning in $1.3 trillion in student debt. The Brookings Institute estimates as much as 40% of students who entered college in the early 2000s may default on their loans by 2023, based on historical trends.

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