Indentured Students

| November-December 2008

As the cost of higher education has grown at an unprecedented rate and government-backed loans have dried up, students and their families have turned to the private sector for assistance. In 2006–07, private loans totaled $17 billion, up from $2 billion a decade earlier. Now, because of today’s flagging economy and tight credit market, even these high-interest lenders are closing their doors to young American dreamers. Is there anything else the free market can do?

The American online (June 12, 2008) proposes modern indentured servitude. Investors would front students’ tuition in exchange for a percentage of their future earnings. A securities market would emerge to rate borrowers on SAT scores, grades, and majors. School choice would also be a factor, as investors gamed out graduation rates, job placement, and potential pay. (Philosophy majors, fret not: The government might still fund you and others who aim to make a difference.)

The Chronicle of Higher Education (July 25, 2008) suggests a less complicated, more forgiving tack: Offer tax credits to employers that pay employees’ monthly loan principal, leaving grads to cover the interest. Businesses would save on employee retention and tax bills. And loan-laden grads would just add another box to their paycheck stubs, which already show subtractions for health insurance, 401(k) contributions, and Social Security funds.

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