Want to Avoid Student Loans? Sell Your Future.

Some of the casualties of the recent economic
downturn have been students and former students who are carrying huge burdens of loans from
their education. Now these are not the government backed loans that have very low interest rates.
These are loans taken out in the private sector that have much higher interest rates that
students use to top up the money they need for their scholarship. Now what happened was
that students came out of school at a time when jobs were hard to find and incomes were
depressed or at least not moving up. And so the money that they thought they would have
to pay off their student loans wasn’t there. And they were also in an environment where
it was hard for them to renegotiate these loans because they didn’t look like very
good credit risks. So a lot of people are stuck with loans that they simply can’t
pay at the rates that they promised to do. What should we do? Well, if we were to forgive some of these
loans or have a government program that would help to bail students out, then you could
argue that anybody should take out loans because they needn’t worry that if they weren’t
able to pay that they would somehow be bankrupt. That somebody would always come to scoop them
up and help them to pay. And that’s a problem that economists call moral hazard. That there’s
a probability that people will take risks and behave badly that increases when they
know there’s a safety net waiting to catch them if things go wrong. Now putting that
aside though I think it would be more useful to consider some innovative solutions to this
problem. The problem essentially was that no one predicted that things could be so bad
for these students that they wouldn’t be able to pay their loans. Not even the people
who lent them the money in the first place. It’s better for them if the students actually
pay. So how do you deal with this possibility, a sort of black swan that nobody thought something
like this could ever happen? Well, one way is to link how students raise
money for their education to the income that they’ll actually earn. So instead of lending
a student money you actually would buy shares in that student’s future income. You’d
become an equity investor rather than a debt investor in that student. This is something
that a lot of people have wanted to do for quite some time and there have been startup
companies that have tried to figure out what the numbers would look like to do this but
there’s a lot of risk. You don’t want to constrain a student too much in his or
her education but if a student enters college saying I’m going to become a corporate lawyer
and then decides to become a poet, well the value of the shares might drop somewhat because
their expected income might be a little bit lower. So how do you make a good match between
students who want to get some of their money right now that they would earn in the future
to pay for their education and investors who see a possibility of a high return? I think that to do that we need to structure
interesting contracts, we need to do the actuarial basis to figure out how likely the students
are to actually make these earnings and then we might have a shot at creating some of these
types of devices, these types of securities. But I think the most important thing is for
this to be something that can be widespread. If there are any regulations that are standing
in the way of this we need to perhaps reconsider them because what’s going to make investors
most attracted to this kind of investment is if they can diversify their risks by bundling
across students. So just like you buy bundles of mortgage which are put together by government
sponsored enterprises like Freddie Mac, Fannie Mae, Sallie Mae even for students, you would
be able to buy bundles of students who have certain credit ratings, certain tiers just
like those mortgages did that got us into a little bit of trouble a few years ago. But
hopefully we can do this in a way that’s transparent, that doesn’t exploit students
and actually makes that money available to them with a slightly lower level of risk.

100 Replies to “Want to Avoid Student Loans? Sell Your Future.”

  1. Here in germany we only have to pay back half of the loan the government gives us. Thats how people who come from humble homes still have the possibility to achieve greatness. And to be honest, I don't know any of my student Рfriends who are studying for the loan-money. Thats just ridiculous. We are studying, so we can get better jobs Рand consequently Рbetter incomes. 

  2. Well I am glad that I study in germany. No loans, no future selling, just free education at universities. ūüôā

  3. What is wrong with the US system that now the idea of selling your future is somehow acceptable. Full circle back to slavery. Let's call it capitalist reformulated, slavery.

  4. How about tying tuition rates to student's future earnings.  Maybe not one-to-one, but it seems the quality of an education might be backed with a bit of a warranty.  (Of course, the idea of investors buy shares in a student's future earning capacity, as proposed in the video, would also place some economic pressure on educational institutions, but not as directed as a warranty on the quality of the education).

  5. What is the interest rate paid by students in the US? How much does it vary? Is it floating or fixed? I've paid about 0,6-1,2 % for the past 5-6 years. I'd borrow more but can't anymore :(. I don't live in the US.

  6. Warren Buffet talked about this like 15 years ago. You can search for his speech on this issue in youtube. The speech is from 1999.

  7. I can't imagine my life without my free education. – It's difficult enough to scrape together the capital needed to start a business without having the crazy student loans on top of that.

  8. That was the most psychotic thing I have heard on this channel. Make the slavery aspect of debt more apparent from the get go. How about we make education cheap again and cap college tuitions. Or even better yet cancel all wars and reduce military budget and make education free.

  9. "You would be able to buy bundles of students…"¬† Nope.¬† Sickening.¬† Let's think about how the problem is handled in the rest of the world: with affordable state schools.¬† Besides: even if we did neglect the moral ramifications of this concept, it would be extremely volatile as an economic investment.¬† I can't believe Big Think has you a chief economist amongst so many other enlightened ideas.¬†¬† "The most important thing" is not removing regulations, the most important thing is warning future students about your repulsive schemes.¬† I note that you are an expert on soccer and sports data.¬† Those skills do NOT cross over into education.¬† Please stay far away from matters of consequence and keep the gamification of education to yourself.

  10. a company is a artificial juristic entity. you can invest in a companys equity to minimise risk. humans cannot be divided into "equity" or share capital. 

  11. I'm sorry, but what is the difference between this and traditional debt slavery? 

    Automatic Wage Garnish of 5% until debt is paid off?

  12. Sounds like slavery if you own shares of a person's future. What happens if someone loses 100% of their shares? They'll always work for free?

  13. 3:49 "…with a SLIGHTLY lower level of risk…" made me laugh; He basically wasted all of our time including his, that b*****d. I thought this was BIG think hah

  14. "Hopefully we can do this in a way that's transparent…."

    Yea right. It'd be the first time ANY loan/debt system was sufficiently transparent, such that moral inequity was avoided. Investing in student debt is tantamount to institutionalised slavery, considering that the new 'financial welfare program' for students would increase the pressure for them to take loans. It'd become less socially acceptable to pursue trades that don't require university qualifications, which would in turn put more pressure on young people to pursue high-risk occupations…. ones that confer less short-term financial self-sufficiency.

    As others have mentioned, this idea reeks of slavery. Kids would leave high school, pick a university course, then be told that they can either spend the next 15-20 years of their life being in massive debt, or they can spend that time being forced into jobs they don't necessarily like. People have the right to change their professions, and pursue another field if that's what they think is best. For god's sake, do I even really need to SAY that?! And yet, when Daniel mentions the idea of a corporate law student deciding to pursue poetry, he quietly laughs. Interesting that he has such contempt for students' free will.

    This man is EXACTLY the kind of person who's causing issues with the education system today. He doesn't see massive student debt as being a problem, but rather an investment opportunity. He, and any others here who'd attack the idea of free education, need to take a good hard look at some European countries, where tertiary education is free. Some of these countries are Scandinavian, with very strong economies. Meanwhile, the US economy continues to languish while people like Daniel Altman refuse to acknowledge that 'debt culture' is implicitly flawed. Worse, he proposes a solution that would probably make things worse.

    I plan to return to university soon, but if his proposal was introduced during my time there, I'd abandon my plans to study. I'd go back to my old ways, working in a menial job and education myself in my spare time. That form of slavery beats his any day.

  15. Capitalism sucks!!! I'm in favor of a European style social democracy, in which we pay taxes for social programs, such as education being actually affordable, among other benefits to society. If America continues to artificially inflate its markets in all sectors, there will be another financial meltdown that will be much greater than the one we experienced a few years ago. And in such a scenario, students who will inherit the future of America will hardly have the motivation to pursue higher education, since tuition rates will have skyrocketed and job creation will have halted indefinitely. But even in a socially funded democratic system, citizens have to display integrity towards the future generations and their country. Because we can already forecast that at the rate America is heading, the future is not looking so bright for it…

  16. Colleges and universities are business corporations NOT educational facilities. The lure of an education should facilitate the equal energy of attaining a qualified employment opportunity in the fields that you studied in. If a college promises a degree than back it up with qualified employment or don't offer the education at all. Selling your future? What an idiotic thing to do. My future is my future and is not for someone who has the cash flow because they got lucky in life.

  17. The moral hazard is already existing on the lenders. They lend knowing the government made the safety net for them assuring they will be covered regardless of student defaulting- which they often can't even do that.

  18. This guy talks about selling and buying students and then says they shouldn't exploit students in the very next sentence.
    The majority of this argument is not backed by any research, and there are so many logical fallacies in it that it's effectively incoherent.
    People aren't stocks, much less are children and young adults. I agree that there's a flaw in the system, but this is a strawman fallacy, fixing a level of the problem that is not necessarily at fault. The fault goes much deeper.
    The speaker addresses how to pay for education, an issue that is contingent upon the price of education, which is flawed. This speaker is plugging up holes to float in a sieve when he should really consider buying a boat.

  19. So wait… If I become an electrical engineer by means of getting shares of… me…. i would have to pay out portions of the amount of money I make in the future? For the rest of my life? There just needs to be a limit i think on loans and… shares. Like, I shouldn't have to pay more than 100% of what the loan is worth. So I take out a loan at $10000 and worst case senario, I pay back $20000. Yeah?!¬†

  20. "Moral azards" is what banks and big investment companies do ALL THE TIME! Since the goverment is so eager to BAILOUT them… why not do the same for students?

  21. Problem is too many students take out these loans to go to private schools or for-profit schools. If you're poor, I don't care if you can get in, don't go unless you have a full ride. It's that simple. Taking a loan at higher than 6% interest is pure stupidity .

  22. Simply amazing how stupidity of these "economists" ca fuck up the entire world and keep doing it again and again.

    Stupid ideia.

  23. College is a scam. Why not make it free like high school? Whatever, I am an online business owner. I don't care about the sheep trade.

  24. I like that he's being creative, but this is not the solution. There's too much variable at stake for someone to invest in their future. Anything could happen. Here's a novel idea. Since it's impossible to get a decent job without a college degree, how about we not treat it like it's a business? The people at the top only think in dollars. Not what benefits the upper administration, so they can keep voting to give themselves raises and increasing tuition to solve their money pit egos.

  25. The problem are not loans, but useless educational services delivered by universities worldwide. In cases, where a student got good grades but cannot get a job, a loan should be partially paid by the Alma mater university. Or the payment for tuition fees should be deferred until the knowledge sold by the university is verified in the real world economy.

  26. Bigthink, I appreciate your persistent attempts to open the floor to new and unusual ideas, but this half-baked libertarian capitalist guff is neither.

    Privatising and corporatising LEARNING instead of just education is the most culturally and politically toxic notion ever spewed onto this channel, no matter how innocuously and earnestly it's delivered. I honestly expect better curation from you.

  27. Or make school cheaper and accessible… And thank you for giving into the bullshit theory of "moral hazard," the bankers have a moral hazard, not the people who are taken advantage of. My school promised so much just to get me in the door, and thousands of other students. 95% of graduates NEVER enter into the field, and we are all stuck holding a useless degree and $30,000+ of debt. We sold our future and got loans, and now we are all being sued for defaulting.

  28. CSOs      Collateralized Student Obligations,  great the next wall street Ponzi scheme has arrived.   Just as soon as we get a triple A rating from Moody's I'm sure JPMorgan, Citi, and BOA will come onboard so we can start peddling this shit to little old ladies, pension funds, and 401k plans.  We will call them ISBs but let's not tell anyone that stands for Indentured Servitude Bonds! 

  29. I dont like the sound of this, it sounds like we'd be designating levels of worth for every kid that comes out of school, this would create a lot of low self esteem indivuduals who didnt make the cut, and it would promote elitism to and extent, and more importantly it would further increase the gap of capitalism. People who arent going to be as successful wont get invested in, and therefore will pay more, while people who are destined to have a high income anyway get topped up with cash for their education; its pushing the privileged up, and bringing the less successful down, this would be like capitalism on steroids, and places like the US already have enough of that problem.

  30. We had a system that was working perfectly. It was called state education. The community was implicitly taking a share in everybody's future by educating them as much as possible. Some would succeed some not, but it would average out. The system still works very well in France and in Europe where students hardly have any loan.

  31. What happened to big think? Just loads of American right-wing rhetoric. This like arguing a new form indentured labour.

  32. This is completely absurd. The issue is not student loans, it is the ridiculous cost of higher education in the US. Why don't we work on lowering education costs? 

  33. It seems like a good idea, but it's only treating a symptom. There needs to be a change in the higher education system in order to make it more affordable for students. There are so many options to make education more affordable, that it's a shame tuition fees haven't decreased.

  34. I like this theory.  As a musician, I hate to see Arts Education suffer due to budget shortfalls.  However, I also realize that the cost of a college degree in Music is usually ill-spent because it's very unlikely to pay for itself unless one lands (and maintains) a highly competitive teaching job.  Perhaps if, rather than guaranteed loans, students put the future value of their education on the market, so investors could "buy shares" in their success, more people would major in fields that are actually likely to net them a marketable education, rather than just generic (English, Business) or frivolous (Music, Theatre) fields, or at the very least, minor in something substantial.  It both promotes investment in ones education AND increases one's likely workplace viability, guaranteeing the "loan" as much as one possibly can.

  35. This channel should be called big think, but always in the box… Bad ideas left and right out of this one. Honestly, education needs to be free, we need a shift in humanity. This world is no more civilized than it was a few hundred years back. We have all this wonderful technology that could be being used to make people work less and enrich themselves more, yet its utilized very poorly and in some cases held back by imposed economic forces. It's all a mess and somehow we landed our self in times that mirror the days of robber barons but now on steroids.

  36. And sadly I already believe they are bundling student loans in this manner, they are called SLABS- student loan asset backed securities. And by Jove if you think the mortgage backed securities crash was bad, if it happens with this it will make 07-08 look silly.

  37. Stupid idea. As an investor, I wouldn't commit a single penny to invest into the ridiculous concept of a "college education." College is a complete waste of time and money. It is designed to throw people into debt, just so they can find a temporary source of limited income, (i.e. a job). Who would invest in something that has extremely limited returns and unlimited risk? Certainly no real investor would consider this. Some real solutions are the price of college needs to come down, less people need to attend college (not everyone should get to go), and the whole curriculum needs to be updated to at least 1990-2000 standards. Or maybe we should just get rid of traditional colleges and create schools sponsored by employers in certain fields, so that if you attend you are trained for your future guaranteed job. That way you aren't graduating with a million morons all looking for jobs every year. The stupid degrees that people come out with today are useless! I have worked in many places where people with a master's degree or PhD work under me for less money, and I have no degree at all. But then again, people want to go into debt as soon as they possibly can, spending $100,000+ on college, buying houses they can't afford, starting families and having kids without a plan, and thinking that everything will just work itself out. Maybe if we taught some actual life skills and useful information in K-12, then more people would have a sound foundation for a stable life, instead of following the rest of the herd off the cliff!

  38. Why did my comment get taken down? What happened to free speech? Am I not allowed to be angry with a system that treats us like mere numbers, and wants to enslave us?

  39. 'you could bundle <students>, just like those mortgage backed securities that got us into trouble a few years ago… but hopfully…" Yeah, no.¬† Let's not sell shares in human lives in the same way Wallstreet crashed our economy, and "hope" it works this time.

  40. Here's an idea!  Let's follow the European model and sponsor kids through school and improve vocational education so that kids who shouldn't go to college don't feel pressured to go.

  41. this video clip sucks on how to do the ruthless exploitation from the poor ! ~~!! the end of capitalism~!!!!!!!! in the process of collapse~ widening the income gap bt the rich and poor……………… ¬†

  42. I understand where people are coming from when they say, "Sell our future?! Education should be free/paid for by taxes/etc." However, the people who ultimately determine that are those who have a track record of wanting to squeeze every penny out of every person who can't afford to do otherwise. So, while we find a way of changing their minds, I think this is a great idea. I, for one, would rather contribute a portion of my income to investors while debt-free than have to struggle to make loan payments on an exorbitant amount that only increases with accumulated interest. Speaking as a student who already has $30K in loans (after having paid some down) and will graduate with about $200K to pay back because of my chosen field, I'd be happier, healthier, and less stressed out if I didn't have to worry about it until after I graduate.

  43. risky behaviors yet the government had no problem bailing out banks, even banks that didn't need the bailout money. here's a novel idea to solving student dept. lets have free college education just like public schools. we spend billions of dollars on war planes, why skip buying one or two and apply towards education. america priorities are screwed.

  44. I would just be happy if my 10% interest rate were reduced even a bit….and that I could actually consoladate my three loans into one, so I don't have to dish out 800$ a month. I'd be tickled pink if it were only 500 a month. The problem is not about getting rid of debt completely for students, but to make it managable, fair, and give students more options. Credit card debt holders get to have bankruptcy….why not a Grad who got into an accident and can't work due to disability? It has happened to people and they can't get the private loan companies to work with them on a more doable, lower monthly payment. Sallie Mae especially wont even try to work out a solution with the Grad. And why can't we ever refinance our interest rates on our students loans like other different types of loans can? Is this all too much to ask for? Really? Is me asking for 500 a month vs 800 a month really so terrible?

  45. I see only 2 options:
    1) Students start boycotting universities until they lower their tuition fees to a affordable price.
    2) Government stops giving out student loans, forcing graduates to not go to college therefore colleges lowering tuition fees.

  46. the majority of people that dislike the video are fucking stupid and don't know fuck all about economics. WHINNY WHORES

  47. I think people are misunderstanding what he means. At this moment it is common for investors to loan money to a startup company. The company agrees to pay the investor a certain percentage of their profits. Since they are simply paying a portion of their income they never owe more than they make no matter what happens. If they close their business they aren't liable for anything. Because of the risk of the loan, investors have the potential to earn a lot of money from the investment. They also stand to lose a lot. If this strategy is used for students than you would simply pay a percentage of your income rather than agree to a fixed amount. This means that after a set amount of time, you don't own any money. Even if you don't get a good paying job, you would not be stuck paying for the rest of your life. It's not a bad alternative.

  48. Legally mandate that all people majoring in Electronics engineering, liberal arts fine arts social sciences except economics, pure mathematics and sciences,cor any other field that has historical unemployment rate exceeding an average of 9% for the previous 20 years.
    get a minimum two year undergrad that has a 93% employment rate, or demon straight a sustainable income and (net) assets 3 times the amount of current education costs.

    This forces people, to be financially stable before studying a career with poor employment outlooks and improves the economy. Although there are cases were people are not able to pay student loans because of unfortunate circumstances almost all of the people who are at risk of defaulting, took degrees with poor employment aspects, there are few doctors, finance majors, engineers, nurses. that struggle financially even during recession times the ones that have are extremely bad with finance or took a niche specialization that no longer has good employment aspects. 

    The notion that post secondary education automatically leads to a great career is erroneous, Its not unethical to force these prerequisites if people are not willing to work two years  it demon straights a lack of resolve for that person.

  49. Wow, I'm actually surprised at the stupidity here. Not from the economist, from the comments here. You guys asking for free education ironically need an education yourselves.

  50. How ironic of him saying that there should not be a safety net but a risk associated with student loans yet the government didn't even think twice about bailing out the very financial institutions that brought the economy down due to reckless behavior….Did I mention that in many European countries the universities are free or that in the UK you start repaying you student loan only after you have achieved a specific salary minimum…Here's an idea…Why do you not cut down on that ridiculous military spending and instead invest that money in better schools/facilities and free studentship for your citizens. ¬†

  51. I agree with many of the comments here about this being a form of slavery. The assumption that he seems to be making is that corporations investing in these hypothetical student's futures would act morally, and yet history paints the picture that some corporations and some corporate individuals do not often have the interests of others as part of their agenda.

  52. A swing and a miss… Although the student might get the money upfront for he's education, when he comes out and get a job, he will have 2 bosses, and still will have to give a part of their income FOR LIFE… no matter the job, the position, the amount, it's a life long loan. Not only that but the student (worker) can be sold and bought at will, and with speculation you get an open door to money laundry… Not a big idea in my book…

  53. so from my understanding from the beginning of this clip is that we shouldn't bail out students because that would create a "moral hazard." and that we shouldn't support students with a "safety net" because they would act recklessly if they knew there was a support system to bail them out.

    ummm hello???? what do you call the bailouts of the bankers? from my understanding its okay to bail out bankers who brought this country into financial ruin (while handing out huge bonuses to people in a failed company) but we can not bail out students who are in the process of furthering their education? 

    where are the reel life "boondock saints" when you need them? im sure that would ruffle the feathers of corruption a little. everyone knows the government wont help. they are in on it

  54. Is this dude bat shit crazy! Yea let people's futures on the stock market, it's not like wall street wouldnt try to manipulate and screw over the students…

  55. let me get this straight. This guy suggests selling shares of people's futures exactly as you would sell shares of a company's ownership. So basically, this guy is suggesting selling shares of people's future ownership.

    Meaning students would legally become the property of the owner of the majority of the shares until their debt is paid back.
    People owned by others until they have paid back their debts. An exact return to indentured servants.

    Of course, this implies not only the great news that human ownership is back on the menu, but it also brings with it the fact that only "good bets" get an education. students will not just need good grades to get into the next class, they'll need good grades to please their future shareholders. Not to mention that all the professions that seem to be risky bets no longer get funding in this system.

    Without even getting into the possibility of your choices of education being directly controlled by your shareholders (do that or we'll take away your funding), we now have a system where the educational choices are indirectly controlled by the market (I have to choose this or I won't get funding).

    Finally, in solution to these problems, our resident speaker actually suggests bundled deals, litterallly the tool that allowed fraudulent companies to destroy the World economy using subprime mortgages. Yes, bundled deals can be useful but come on! with the deregulated economies in the US, this is a recipe for absolute disaster.

    Please, please never let this dangerous man into any position of power where he would be able to influence actions of governments.

  56. Am I correct in saying his whole bit about moral harzard in regards to forgiving student loans doesn't apply to forgiving the banks and car companies.¬† Right?…

  57. You mean like Wall Street & Big Banks they can do whatever and the government will help them. Banks have lower interest rates on loans the government gives them than the rates of student loans that's sick. How about we go the German way and invest in our future generations of America and give free college to the people like Germany is doing. They are not bankrupt or trillions in debt because they don't bailout banks and go to wars where they have Shit to do.

  58. An interesting idea. Buying and selling people's future earning ability. But what happens if they are unable to complete their course? Do reposes their future and make them work in jobs that are of known to earn a stable income?

  59. If you bail out the students, that means tax payers are bailing out the banks once again.

    People bought homes they couldn't afford- banks bailed out
    Kids bought useless college degrees -now they want another bailout.

  60. this is crazy and the most idiotic idea ever omg how tha hell this ppl se the education wolrd is like slaves 

  61. This proposed system discourages people who join lower paying career paths that have high rewards, such as scientists and teachers.

  62. Innovative solution? Last time I checked, owning someone's future earnings and assets was what we refer to as slavery. Even if the reward for this bondage is a fancy penthouse condo and a brand new tesla. If you don't own your earnings, you don't own yourself.

    Someone moderately smart said: ‚ÄúThose who surrender freedom for security will not have, nor do they deserve, either one.‚ÄĚ it was Ben Franklin.

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