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Human Capital Contracts: How They Could Help You Pay for College

May 25, 2012 Jennifer Williamson, Distance Columnist | 0 Comments

Consider this: instead of taking out a loan to go to college, what if you accepted a payment of, say, $20,000 to attend school—in exchange for 5% of your income every year for a decade after graduation?

Students can already get online degree program financing like this through Lumni, an organization that serves mostly low-income students in the US, Chile, Colombia, and Mexico. Through the program, students agree to pay a certain percentage of their income every year after graduation for a period of ten years or less. After the repayment period is up, there is no further obligation to pay—even if you have not paid off the entire loan.

The program has its benefits and drawbacks. Here’s an overview of each.

Reasons to Like Human Capital Contracts

Elimination of crushing student debt

Woman Signing Contract

Human Capital Contracts haven’t caught on in the US yet. They do have some significant benefits for students, although they can have drawbacks as well—particularly for those who are projected to be in higher earning brackets.






The program is designed to eliminate the problem of high levels of student debt that keep graduates from going into low-earning fields that contribute to society. Deciding whether a Human Capital Contract would be a good financial deal will involve some math—you’ll have to calculate the appropriate percentage of your future earnings and compare that to the payments (plus interest) on your financial aid package, which can be difficult as private loan interest rates are often variable.

A limited repayment term

For some people, the monthly payments will in fact be higher with Human Capital Contracts than they would have for more traditional forms of student loans.  But the fact that the financial obligation expires after ten years is a plus.

Payments based on income

Another attractive feature of these agreements is that the repayment terms stay as a percentage of your income—so your monthly payments adjust depending on your income. While the government also offers Income-Based Repayment plans, these apply only to federal loans—not private loans—and you have to fall within a certain income bracket to qualify. With Human Capital Contracts, the repayment stays as a single percentage, no matter how much you earn.

Reasons They’re Not Yet the Next Big Thing

To some people, it sounds like indentured servitude

What bothers some people about Human Capital Contracts is that they sound disconcertingly like indentured servitude contracts—where the lender gets a cut of the borrower’s “labor” for a set amount of time. While it can be argued that technically, high-interest-rate loans limit students’ options more and that students still have endless choice about their career paths under a Human Capital Contract agreement, the idea that wealthy people or groups can further enrich themselves by investing in someone’s education and then benefiting from their work is a turnoff to some.

They’re more effective in financing predictable careers

Graduates entering high-paying fields like medicine are an attractive investment. So are teachers, social workers, and others who earn a dependable salary—even if it’s not high. However, some people—artists, entrepreneurs, or those who want to perform significant volunteer work as part of their career path, for example—don’t generally have high or even regular earnings expectations, even if they contribute a great deal to society. Lumni doesn’t finance everyone—the organization decides whether to provide funding based on whether the career a student wants to pursue is dependable, among other factors.

There’s less incentive for high-earning graduates to join

Obviously, the most attractive investments are students with high earning potential. The investors earn more from these graduates, allowing them to spread the wealth around—and potentially invest in less stable career paths as well. However, high-earning graduates often have to pay a larger chunk of change every month since the repayments are based on a percentage of their earnings—and for some, a more traditional financial aid arrangement really is a better deal.

Human Capital Contracts haven’t caught on in the US yet. They do have some significant benefits for students, although they can have drawbacks as well—particularly for those who are projected to be in higher earning brackets. If they do catch on in the US, chances are they will be a complement to, rather than a replacement for, more traditional forms of student aid. Still, for some, they may be worth looking into


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