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The Daily Wildcat

The Daily Wildcat


    Column: Innovative loans liberate students

    Two companies named Pave and Upstart have recently been attracting a lot of attention. Why should college students care?

    Pave and Upstart are in the business of human capital contracts, an innovative way for people to borrow money instead of the conventional loan system.

    These contracts do not require the return of the principle plus interest. Instead, borrowers are called “talent” and “upstarts” who pledge a portion of their future income to their prospective borrower in return for the capital investment necessary to pay for college or for a business start-up.

    The system would ensure that becoming tied down to loans would not be the only option for struggling college students.

    The novelty of human capital contracts is that they completely avoid the bureaucratic and costly system of borrowing loans. A needy borrower is seen as an investment opportunity on the part of the potential lender. Sounds like a good idea, right?

    But critics call this a form of technological “indentured servitude,” which is just another form of human commodification.

    In reality, it is no different than the current system but without the difficult process of getting loans, either for college or for business start-ups. A person’s ability to get money from a lender is not based on their financial record, but on their future potential. This is great for college students, especially if they lack a substantial credit history.

    That idea is what companies like Pave were founded on.

    “We thought human capital contracts were a better option for a lot of people,” said Oren Bass, the co-founder of Pave and a former employee at Goldman Sachs, in an article on “It was an opportunity to have a profound socioeconomic effect by giving people access to funding that they’ve never had before.”

    Pave brought in $7,000 for a novelty-necktie startup and $50,000 for a production company.

    Currently, only accredited investors with a net worth in the millions and significant annual incomes can buy into potential borrowers on sites like Pave and Upstart, according to Business Insider.We need to incentivize this possibility in order for it to work. Until then, loans will be the default. And nobody knows how much loans suck more than college students.

    So far, the idea of human capital contracts seems to be getting some attention in Congress.

    Both Democrats and Republicans have offered legislation that would open the door for human capital contracts to pay a college student’s education. The best option, I believe, comes from a proposal from the American Enterprise Institute which would create exemptions in the tax code for human capital contracts, making it an attractive option for potential lenders.

    Until these exemptions are put on the books, students will not be able to reap the benefits of human capital contracts. It is time that we treat students as opportunities and not risks, all while preventing government loans from being the only option.

    In reality — contradictory to what opponents might say — human capital contracts are more about investment and opportunity than human commodification.


    Casey Hoyack is a senior studying politics, philosophy, economics and law. Follow him on Twitter.

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