There are many interesting tuition payment scenarios that exist. Most schools simply involve with burdening people with debt for life. Now, universities are offering a different form of indebtedness, which is to pay a percentage of one’s future income:
Step side student loans: the Lambda School is the first school to equitize human labor as a business model.
Based in California, the school teaches information technology skills online and charges zero tuition, according to Bloomberg. In fact, it even offers select students a stipend as they attend. The school’s website describes it as a school that “trains people online to be software engineers at no up-front cost.”
But as always, there is a catch: what The Lambda School does ask for, is for students to pay back 17% of their income from the first two years of working, if their earnings exceed $50,000 per year. The school caps a student’s maximum payment at $30,000 and those who don’t earn $50,000 per year aren’t required to pay anything. Students also have the option of a “traditional” schooling arrangement where they pay $20,000 upfront and get to keep their future income (after the government takes its cut, of course).
As of now, there are about 1300 students enrolled and, confirming the company has investors’ seal of approval, it has already raised nearly $50 million. More importantly, its job placement record has been impressive so far, with 86% of its graduates getting jobs within 180 days of finishing their program. And the piece de resistance: the median starting salary is a whopping $60,000.
The “free market” style benefits of equitizing labor are obvious: it gives the school incentive to invest in the future of its students. The school has an incentive to train and place students where they will earn the most return on investment for the school. Additionally, students who receive stipends can use them for further investments in training, which can be valuable for hard-working students from lower income backgrounds. It’s simple: higher earners pay back more and lower earners pay back less.
Already the idea is being considered for broader adoption amid traditional universities. The model would include free or reduced tuition – similar to what Purdue is now offering – in exchange for a share of students’ future income. A second model would allow graduates to use a similar arrangement to pay back their federal student loans.
Those that take exception to promising a share of your future labor (we’re going to take a guess and say it won’t be popular with Marxists) will have trouble arguing against the concept that the idea is voluntary and that the trade off of offering future income in return for assistance is age-old.
But problems do exist. For example, if less talented individuals are the most likely to sign away their future income, it could create an “adverse selection” problem. But this hasn’t stopped companies and startups from selling equity, and as far as selecting students who will provide a good ROI, the onus is on the school to perform proper due diligence – not on Federal loan officers – just as it would be for any investor in any market.
In the world of IT, the demand for labor is robust, but it still remains to be seen if this model could work in fields like philosophy, music or gender studies, where incomes can be significantly lower. (source, source)