Would you trade future salary for a free university education?

A Chicago business professor spurred debate online with a controversial solution to the rising student debt problem. (Yin Yang/iStockphoto)Would you consider paying a university student's entire tuition in exchange for a percentage of his or her future earnings? How about if the situation were reversed?

This question is at the heart of a New York Times op-ed published Wednesday by Luigi Zingales, a University of Chicago business school professor and author.

In it, Zingales proposes the idea of an "equity contract," whereby venture capitalists directly finance the educations of bright, but underprivileged, students. In exchange, the investors are entitled to a percentage of the student's future income.

This type of contract could possibly help fix the burgeoning debt crisis caused by increasing tuition costs, decreasing job prospects and rising loan delinquency in the U.S., he wrote. In short, it could be a way to pop the student loan bubble.

"To avoid the next credit bubble and debt crisis, we need to eliminate government subsidies and link tuition financing to the incomes of college graduates," Zingales wrote. "The stock of student loans has reached $1 trillion, while the percentage of borrowers in default jumped to 8.8 per cent in 2009 from 6.7 per cent in 2007."

Zingales argues that because incoming freshman aren't usually the most financially savvy borrowers, banks often counsel them to take out large amounts of money. The debt they accrue can be nearly impossible to pay back without a very strong post-grad income.

"I do not want to suggest that helping underprivileged students attend college is bad. A true free-market system equalizes opportunities, if not for fairness, at least for efficiency: talent should not be wasted," he wrote.

He suggests that the best way to fix this inefficiency to pair up under-funded students with venture capitalists, who often finance new ventures with little or no collateral.

The 'endpoint of neoliberalism'?

"In exchange for their capital, the investors would receive a fraction of a student's future income -- or, even better, a fraction of the increase in her income that derives from college attendance."

He goes on to prove examples of similar, smaller-scale programs at top-tier schools like Yale, but some detractors were unimpressed by the idea.

"The logical endpoint of neoliberalism: Chicago economist wants to make college grads indentured servants," wrote Max Berger on Twitter, who describes himself in his bio as an "organizer with the Occupy movement."

"Taken literally, financing education with equity rather than debt would be slavery, right?" Tweeted Matt Yglesias, a writer who covers economics for Slate.

Similar sentiments were echoed by others online.



What's your take on the issue? Do you think it would be a good idea to have venture capitalists pay for the educations of students? Would you enter into an equity contract if you had the opportunity? Let us know below.