Can “Human Capital Contracts” Solve The Higher Education Bubble?

At the Grand Forks Herald, higher education apologist Tom Dennis thinks that so-called “human capital contracts” could be the solution to the surging costs associated with getting a degree.

The contract would have investors paying for a students education in exchange for a portion of that student’s future earnings. In practice it seems a bit too much like indentured servitude for my tastes, but on paper it makes sense. Investors would want to ensure that the students they fund pursue degrees that will produce enough income to make their investment profitable. Students interested in the proverbial “underwater basket weaving” degree paths wouldn’t attract investors.

Could it work? Maybe. The problem is that these investors and students would still have to operate in a higher education market that has been bloated by government subsidies. In free markets, businesses operate to serve their customers. They try and provide the best products/services possible at competitive prices. But higher education isn’t a free market. Rather, most universities are operated not to serve the students but rather to harvest the government-subsidized loans and grants that come attached with them.

The colleges get their money up front. The student is stuck trying to pay off the government for the rest of his/her life. Colleges can afford to keep jacking up the prices because the politicians keep doling out more money.

Until that vicious cycle is broken, and the cost of higher education is allowed to return to market-based prices, no “human capital contracts” are ever going to have an impact.

Update: Whistler reminds me that these “human capital contracts” sound a bit like the personal incorporations described in the excellent science fiction book, The Unincorporated Man.

Rob Port

Rob Port is the editor of In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters.

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