ERIC Number: ED472389
Record Type: RIE
Publication Date: 2002-Dec-16
Human Capital Contracts: "Equity-Like" Instruments for Financing Higher Education. Policy Analysis.
Human capital contracts are "equity-like" instruments for financing higher education. Since repayment depends on earning and adjusts to student capital to pay, these contracts should be more attractive to students than traditional loans. By making transparent the relative economic value of certain fields of study or the value of degrees from competing institutions, human capital contracts can improve the efficiency of the higher education market. Under a human capital contract, students receive funding in exchange for a percentage of their income during a fixed time period. Such contracts are equity-like instruments because the investor's return depends on the student's earnings. Effects of these arrangements include less risk for students, transfer of risk to parties that can manage it better, increased information regarding the economic value of education, and increased competition in the higher education market. To ensure the development of human capital contracts for financing higher education, policymakers should assure investors that such contracts are fully enforceable and afford them the same legal protection that student loans receive. Human capital contracts should be acknowledged as securities so that investment funds will be allowed to hold them, and they should receive tax treatment similar to that given other means of student financing. (SM)
Cato Institute, 1000 Massachusetts Avenue, N.W., Washington, DC 20001 ($6). Tel: 800-767-1241 (Toll Free); Fax: 202-842-3490; Web site: http://www.cato.org.
Publication Type: Reports - Descriptive
Education Level: N/A
Authoring Institution: Cato Inst., Washington, DC.