Wednesday, August 19, 2015

[LINK] Purdue Wants To Sell Student's Future Income For Tuition

Purdue University is seeking a private investment firm to help them establish an Income Share Agreement program. This is NOT a new idea- they are more commonly called Human Capital Contracts and have been implemented- and promptly withdrawn- by universities in the past. And it appears they (Purdue) are not doing anything to resolve the adverse selection bias inherent in such a plan (people who are more likely to earn less are more likely to sign an ISA because it will be cheaper and vice versa.)

While it is nice that they are considering something new, I wonder if they teach the concept of moral hazards in their Econ classes?

Here's a cool academic article about risk based student loans by Michael Simkovic.

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