A New Far-Right Proposal for Financing College “Innovatively”: Or, How to Graduate from College as an Indentured Corporate Servant

In “Here’s a New Way to Pay for College,” an article published in USA Today [http://college.usatoday.com/2014/04/17/heres-a-new-way-to-pay-for-college/], Daniel Wheaton reports on a new Far-Right proposal to address the student-debt crisis. In a bill that they have called “The Student Success Act,” Marco Rubio, the Republican Senator from Florida, and Jim Petri, a Republican House member from Wisconsin, are proposing private financing of college educations with money pooled from corporate sources.

So, how is this different than student loans secured through private banks? Well, the funding would be framed or defined more as a long-term investment. The recipients would agree to pay back a portion of their incomes for 30 years as a sort of dividend to those who have made the investments in their educations. Rubio and Petri call these contracts “income-share agreements,” and the percentage of the participating student’s income that he or she will owe the investors will increase as his or her income increases.

In its broad shape, the proposal seems comparable to what some entertainers, such as David Bowie, and some athletes, such as Houston Texans running back Arian Foster, are now doing in creating “celebrity bonds.” But since students have a much less certain basis for projecting future earnings, I almost immediately suspected that for students this sort of deal would amount to a sort of indentured servitude.

But the article did not allow me to dwell on that suspicion. According to Wheaton, Rubio and Petri have identified their model for this proposal as Upstart, which finds funding to support entrepreneurial ideas generated by college students who are nearing graduation. In fact, David Girouard, one of the co-founders of Upstart, has indicated that the legislation proposed by Rubio and Petri may actually benefit Upstart by formalizing the mechanisms by which those making investments both in individual student’s college educations and in the entrepreneurial ideas for which Upstart seeks to find funding might secure those investments in the absence of a simple, legally binding loan agreement.

Yet, exactly what such mechanisms might be remains a murky area—and very troublingly murky.

To his credit, Wheaton then quotes from interviews with several students at different institutions about Rubio and Petri’s proposed legislation, and the students whom he interviews turn out to be very perceptive. They focus quite pointedly and succinctly on the core issues: namely, whether students will have enough sophistication to understand the financial ramifications of such arrangements; whether such arrangements might not end up being more costly that even loans currently are; whether the investments will be geared to exploit the ambitions of economically disadvantaged students who wish to attend elite institutions; and, echoing my immediate suspicion, whether the arrangements might devolve into something equivalent to a contemporary version of indentured servitude. As Kelly Sturek, a student at the University of Nebraska, observed, “’I can see a company looking for some talent and agreeing to pay for their school, but only if they study in that company’s field.’” And, surely, in such an instance, the company would not want that student working for a competitor.

Of course, Rubio and Petri see nothing but the rosy upside to their proposal. In a manner that begs to be accepted as well-meaning and therefore comes across as disingenuous, Petri seeks to deflect attention from the most obvious issues with this proposal but ends up instead highlighting those issues: “Petri says while certain fields will receive more attention because they would have a higher return on investment, the quality and perceived value of the program would play a large role.   . . . ‘For instance, a STEM program at a low-quality school could have less perceived value than a liberal arts program at a high-quality school, and this could change the student’s financing terms,’ Petri wrote. ‘As they say, it’s not the quantity, it’s quality.’”

In short, the best investments will be in high-achieving students from very disadvantaged backgrounds. Although I am certain that Rubio and Petri would frame their proposal as another option for students who have too few options available to them, it’s not hard to see how this approach could lead to the long-term economic exploitation of those students, in which the earnings that accrue from their academic achievement are, over the bulk of their working lives, parceled out as profits to those who invested in their educations and may very well be their employers.

This proposal potentially gives a whole new meaning to guaranteed lifetime employment with a single corporation. It comes out of the same mindset that conceived of turning pension benefits into 401k plans in which employee contributions are funneled back into the company’s stock, transforming a corporate liability into a corporate asset. Although restrictions have been imposed on the allocation of 401k investments, most retirees are going to be unpleasantly surprised at how much the management of those accounts has eaten into what the accounts have earned. And in more extreme cases, which have been anything but rare—think Enron, WorldCom, etc.—the collapse of the corporations has simply wiped out employee retirement accounts. And not surprisingly, in the liquidation of the corporate assets to pay off creditors, those employees who 401k plans have been wiped out have found themselves, like those still with unprotected pensions, at the back end of the line.


2 thoughts on “A New Far-Right Proposal for Financing College “Innovatively”: Or, How to Graduate from College as an Indentured Corporate Servant

  1. This is the GOP version of the Oregon Pay-It-Forward proposal that would allow students to pay tuition as a proportion of their post-graduation earnings. In this case, students would pay (back) tuition by working it off for the people who paid it for them. I fully agree that the risk of essentially creating indentured servitude is very high, and so is the risk that universities will be pushed to privilege certain majors over others via the pressure of companies offering funding to students. I have that same fear about pay-it-forward, by the way: those philosophy majors aren’t earning enough to pay off what we invested in them, so let’s push everybody into Marketing, or whatever.

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