- Americans owe $US1.5 trillion in student loan debt, and the problem isn’t going away as tuition rates climb and the demand for college degrees remains high.
- James Altucher, a tech investor and self-help guru, says young people should consider letting wealthy individuals or organisations invest in their future for a percentage of their future earnings. This would avoid them having to take on a massive pile of debt they may never be able to pay off.
- The idea has ignited criticism over the years from people who say “human capital contracts” are a modern form of indentured servitude, or slavery.
- We asked Altucher why he thinks this idea could fix the student debt problem.
In Startupland, where college dropouts have a reputation for becoming Silicon Valley royalty, one wealthy tech investor has a bit of unsurprising advice for young people.
Skip college, says James Altucher. It’s a rip off.
But if you decide a higher education is a critical part of your future success, Altucher says he has a wild idea that can save young people from crushing tuition debt.
In a blog post that originally appeared on Quora, Altucher, a hedge fund manager, author, and self-help guru, posited that young people would be much better off if they let high net-worth individuals or organisations invest in their future for a stake in their success.
“What if I graduate college and then say, ‘I will sell off 10% of all of my future earnings,'” Altucher said in the post.
“This creates an exchange where I can invest in kids that look like they have bright futures (or some organisations can do it for charitable reasons) and then I get a piece of all the earnings of the kids I invest in,” he said, adding that investing in young people could be a “great source of income for older people in a low-interest rate environment.”
Altucher explained in his post, “It can also help kids monetise their future income (the way a company does every single day) to help pay down their student loan debt.”
Americans owe $US1.5 trillion in student loan debt, surpassing auto loan debt ($US1.1 trillion) and credit card debt ($US977 billion) in the US. According to Altucher, the problem isn’t going away as tuition rates climb and the demand for college degrees remains high.
His controversial solution has been floated before.
In 2013, a new crop of startups let people forge “human capital contracts,” in which an individual raises money from investors in exchange for equity in themselves. Borrowers, who were often referred to as “talent” or “upstarts,” could potentially earn $US20,000 for every one per cent of future income they were willing to pledge. They might use the money to pay off their college loans or cover living expenses while they start a business.
Human capital contracts never took off they way their adherents hoped. Critics said they weren’t loans, but “a form of tech-enabled ‘indentured servitude,'” Vice wrote in 2013.
Altucher, who is perhaps best known as the face of the “bitcoin genius” ads that are all over the internet, proposed putting a cap on the number of years that the borrower has to give away part of their earnings, so they aren’t on the hook for the rest of their lives.
“What’s not consensual is student loan debt,” Altucher said in response to the criticism.
“In a weird way, students feel like they have to go to college, because they will either disappoint their friends or their peers or their future employers or their parents,” he said. “So they feel forced to go to college, and they are forced to take student loans, and then the government will take those wages from you – without your consent – for the rest of your life, because it’s the only debt you can’t get rid of in bankruptcy.”
Currently, it is nearly impossible to have your student loan debt forgiven by declaring bankruptcy. To be successful, the borrower must hire a lawyer, which can be expensive, and prove that being forced to repay their student loans poses an “undue hardship.”
Other critics are not convinced that investors can tell a person is going to be successful based on what they’re like as a college student. They also run the risk that their investment has low returns – or worse, becomes worthless – in the event the person suffers a career-killing move, such as a sexual harassment scandal, or serious illness.
In 2013, one of those companies specializing in human capital contracts, called Fantex, gave investors the ability to buy and sell interests in professional athletes. It shut down last year after lacklustre interest from investors and little trading activity proved fatal.
A college professor of sports management warned of the company’s potential pitfalls for investors in a 2013 interview with The New York Times: “You are potentially one hit away from losing your money. On any given Sunday, anything can happen to any player.”
Altucher admitted that not all bets would give great returns, though he’s optimistic.
“Sure, some of these ‘investments’ will not work out, but some will, creating a source of income for older generations and removing the debt of younger generations, allowing them to be the entrepreneurs and innovators they were meant to be,” Altucher said.
“Will this happen? I don’t know. Why don’t you make this business? Be a billionaire.”
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