One idea for dealing with the student debt problem that has been kicking around for the past few years is “equity-based financing.” It’s a system in which people “invest” in college students, helping them pay for their tuition in return for a percentage of their future earnings. The idea sounds good on paper in other ways: markets funding certain degrees could end up being a powerful signal as to which programs are worth their sticker prices.
But the idea has remained largely untried. Until now. Enter Educational Equity, Inc., a Chicago startup that is dipping its toes in the water. As the company’s founder said in an interview with Forbes, he prefers to focus on a narrow range of degrees with steady returns and students who have demonstrated commitment in their previous endeavors:
Rather than grouse about the sanctity of contracts, Davis says he prefers to focus on reliable but lower-sizzle fields such as school administration or engineering. In those arenas, extra education produces sturdy gains in earnings power without creating individual bonanzas that are likely to lead to quarrels. In fact, Davis’s contracts specify that the repayment terms exempt any participants’ income above $200,000 a year. [...]
The earliest participants in Davis’s Education Equity program tend to be former Teach for America corps members who now are looking to become principals. Davis says he is impressed with their individual drive and focus; he also likes the fact that cohesion among these participants makes them more eager to do well, so that future generations of TFA alumni can be seen as prime candidates for principal-training programs.
Smart. This could be one to watch.