Indentured Servitude, or New Way to Pay for College?

A few months back I wrote a controversial post I wrote about Lumni, a social enterprise based in Colombia that provides financing for low-income college students in Latin America in exchange for a % of the students future earnings for 10 years after college graduation.

The debate about whether Lumni’s business model is a novel human capital investment idea or a crude form of indentured servitude has made its way front and center in David Bornstein‘s latest NYTimes columns.  In this latest one, he articulates well the advantages of Lumni’s model.

His main argument is, “Human capital contracts are not just loans by another name. One of their key advantages is that they provide students with a form of career insurance. Student who opt for them will discover that their cost of financing is lowest when they need money most, and it will be highest when they need it least. They give up a portion of their success at the upper end for peace of mind when times get tough.”

Also interesting to note that Lumni’s model has been tried before.  Apparently a few decades ago, Yale University experimented with a similar tuition repayment program that involved a fraction of income. The idea was abandoned after the introduction of federally subsidized loans.  Australia allows students to pay for college through a special tax after they graduate, which operates in a similar fashion.  Bornstein also pointed out that in 2009, the U.S. government introduced income-based repayment for federal loans, which are available to students whose debt is high relative to their income.

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About Pamela Sud

Pamela Sud is currently a joint MPP/MBA degree candidate at Harvard Business School/Harvard Kennedy School.
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