Securitizing human education

MyRichUncle is not a lender. MyRichUncle is a network of investors, “Rich Uncles” if you will, interested in financing the next generation of undergraduate and graduate students.

MyRichUncle provides students with Education Investments–funds for school. Upon graduation, students pay a fixed percentage of their future income for a fixed period of time. At the end of the period, their obligation is over regardless of what they have paid.

Education Investments are not loans. That means there is no principal or interest, and there is no obligation to payback the amount initially received. At the end of the payment period, your obligation is over, regardless of what you’ve paid.

Education is the greatest investment one can make toward his or her future. It is the key to opportunity. MyRichUncle is here to make sure everyone can afford it.

In other words, investors give students money and hold equity in their future income performance. Payments range from one to three percent, over a ten to fifteen year period. This is an onerous burden over time but the marginal tax rate is not so large to make the person stop working. Plus there is a 2.5 percent service fee on what you borrow.

Here is their web site. Here is an article on the involvement of Michael Robertson, the MP3.com guy. Here is a Cato policy analysis on the idea.

My take: Why not try this? It will help some people go to a better school. True, the offer will take in some high time preference suckers, who don’t really need the money, but those people already have enough paths to ruin.

Keep in mind this is an insurance scheme, not just a loan market or a way to go through school. If it turns out that you are less smart or less hard-working than you thought you were, you pay less back. The self-confident may refuse to buy it, which leaves the fearful dominating the market. Think of this as stupidity insurance, or laziness insurance, packaged under a more marketable and flattering guise (“You too can go to school…”). Of course it is a central question in economics why markets provide so little insurance protection for long-term risks. Let’s hope this instrument is the start of a new trend.

Thanks to Paul Edwards for the pointer.