Income-sharing in Africa

Several African countries have introduced state loan schemes. But governments have struggled to chase up debts. The private sector is now trying to do a better job. Kepler and Akilah, an all-female college in Kigali, are working with Chancen International, a German foundation, to try out a model of student financing popular among economists—Income Share Agreements. Chancen pays the upfront costs of a select group of students. Once they graduate, alumni pay Chancen a share of their monthly income, up to a maximum of 180% of the original loan. If they do not get a job, they pay nothing.

That is from The Economist, a survey article on higher education in Africa.  Here are related links on the same scheme.


Lambda School and tech bootcamps have this same model to mixed success. I'm a fan of choice though when all is said and done.

"From each according to his ability, to each according to his needs"

Privatizing income taxes.

The Economist article that caught my eye this week is this one:

Shrinkflation has been ongoing for at least the past decade and it is endemic consumer goods. I share the same concern as the Economist that the current measures of inflation have not fully baked this in. Combine that with rising college costs, housing costs, and health insurance costs and the true nature of inflation emerges. It's not out of control but it's not as low as we are led to believe. It may not even be fixable by interest rates without causing a serious recession.

From the article in "The Economist":

"Every first-year economics student quickly becomes familiar with charts of supply and demand, which place price on one axis and quantity on the other. Given a drop in demand, the charts show, firms can either sell fewer items at the prevailing price or cut prices to prop up sales. But online retailing, which makes it easier to collect fine-grained price data, reveals how poorly textbook models reflect real-world market dynamics. "

Needless to say, I am shocked SHOCKED to discover economics models do not reflect reality.

Seriously? This scheme is more complicated than a Nigerian scam.

The same problem of distortion of icnentives as in high taxation, no?

But colleges, teachers, universities and professors should also have some skin in the game, and not be able to collect all what is financed upfront.

There's a fly in this ointment, and that's that service contracts by law cannot be easily "specifically performed" which is a legal term meaning you cannot easily force the person to fulfill their half of the bargain. If a student decides not to work hard or at all in the first 15 years after their graduation, the creditor is out of luck. You see this in the music industry all the time.

Apprenticeship as an alternative to law school is rising in popularity as a way to become a lawyer without incurring back breaking student debt. There's even a web site, called Like Lincoln (because Abraham Lincoln became a lawyer by "reading the law"): I believe California is still the only state that allows one to sit for the bar exam without having a degree from an accredited law school. I should point out that California has always used the bar exam to weed out unqualified aspiring lawyers who have degrees from "accredited" law schools (the California bar exam is relatively difficult); hence, law schools in California are about as ubiquitous as gas stations. Everyone can go to law school, but many fail to pass the bar exam. I suppose "reading the law" is a fairer way for weeding out the unqualified: at least the weeded out don't have back breaking student debt.

Income-sharing between law school and law school graduates likely won't become popular. It's true that the elite law schools rely on voluntary donations from graduates: graduates donate in part from the symbiotic relationship - the donations (and large endowment) enhance the status of the law school and a degree from the law school. Doesn't this just help the affluent who can make the donations? No, the large endowment allows the law school to grant scholarships (i.e., tuition waivers) to academically highly qualified but financially unqualified applicants. As for the lower tier (sometimes for profit) law schools, income-sharing arrangements might be the alternative to simply shuttering the law school. Come to think of it, income-sharing arrangements may become the alternative to the graveyard of once-successful businesses (e.g., retail), labor working for a share of the revenues/profits rather than fixed salaries. This would be a return to the past, when apprenticeships and share-cropping were common, which would suggest that Peter Thiel's linear (as opposed to cyclical) view of time is a fantasy.

This is how Kim Kardashian says she is going to become a lawyer soon as well (with a private tutor to help).

"Several African countries have introduced state loan schemes. But governments have struggled to chase up debts."

Does Chancen really think it will be better than the Rwandan government at "chasing up debts" which, in this case, would entail tracking pay and employment and ultimately garnishing pay through the Rwandan court system? Economists, as a group, don't seem very aware of the practical consequences of their "popular" idealistic schemes.

Every time I've dived into reading about "higher education" in Africa I've gotten the impression that it's largely a scam. A lot of African college degrees seem equivalent to US high school diplomas. The LinkedIn CVs of many African college graduates place them physically in a different city or country from their universities during their college years. Some colleges seem to be visa documentation mills. Check out the African selectees for programs like the various Google internships.

How does income sharing work if the student becomes a government official and takes bribes?

Do you think the official will report bribes as income, or do you think the official will just report his/her state income?

>alumni pay Chancen a share of their monthly income, up to a maximum of 180% of the original loan.

Don't they have a bankruptcy system in those countries?

Interesting that the article features Kigali Rwanda. The country cut ties with its francophone masters, particularly France which it blames for the genocide. The US stepped in to fill the role. All articles about Rwanda have been different since.

Why is all this relevant? Because the cost of higher education is likely not the main impediment for most African students. That is the mostly case in anglophone countries where education is treated as a commodity. Rather, the lack of quality institutions, the lack of collaboration between university programs and future employers are more relevant issues for most Africa. I taught at a public university in Africa for two years and it was an eye opening experience.

As for the idea of income sharing for countries where it’s practiced, it certainly would work better than the US model whereby students accumulate mortgage size loans for a barely adequate degree

Do you really think universities will shift pricing models to *reduce* prices?

It seems to me that the motivation would be the opposite -- that universities are running up against the maximum they can charge students who don't know their future incomes yet. If they have knowledge of future incomes, they know who they can charge *more.*

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