ONE DAY IN 2017, Lauren Neuwirth sank into a chair in her university’s financial aid office feeling out of options. She was finishing her second year at Purdue University in Indiana, a school she’d chosen for its top-ranked engineering program. Neuwirth, who grew up near Milwaukee, was working two jobs to cover her living expenses and quickly running through the money her mother had set aside for college. Federal student loans only covered some of Purdue’s pricey out-of-state tuition. She worried that to remain in school she’d have to take out expensive private loans or join the Army.
But then Purdue offered her another way to pay. Investors—including wealthy alumni, a hedge fund, and the Purdue Research Foundation—would front her $50,000 to cover two years of college. In exchange, she’d owe them 14.8 percent of whatever income she earned in the eight years after she graduated. Neuwirth agreed. Last fall, her fifth and final year as a double major in food science and biological engineering, she received a job offer from the agribusiness Cargill at a salary of $56,000. If all goes as planned, she’ll eventually return a healthy profit for those investors.
An American story: Underfund a public good—higher education—and, as a bonus, create a new investment market. If hedge fund managers can bet on mortgages and pork futures, why not a human being?
Purdue—the hook for the largely positive Wired story—even metes out different terms and award amounts according to its own students’ future earnings:
Instead of assessing borrowers based on their creditworthiness, ISA investors evaluate students’ earning potential. And that’s where things get tricky. At Purdue, one feature has proved particularly controversial: Students with the lowest earning potential receive the worst repayment terms. For example, Savannah Marina Williams, a senior from Auburn, Indiana, working toward a degree in the low-paying field of education, was fronted roughly $30,000 by Purdue, nearly $20,000 less than Neuwirth, the bioengineering student. But Williams is obligated to pay roughly the same share of her income as Neuwirth, nearly 15 percent, and she’ll be paying it for 10 years instead of eight.
The logic is unassailable: Since the student has already been objectified as an investment vehicle, why not punish her for pursuing the university’s mission statement?
The market has, perhaps inevitably, already been securitized:
At the same time, more investors are starting to view students as a promising asset class. Christopher Ricciardi is a managing partner with FlowPoint Capital Partners, a New York investment firm; he is known as the “grandfather of CDOs” for his role in popularizing collateralized debt obligations, the tools that seeded the 2008 financial crisis. This past fall, FlowPoint unveiled edly, an online marketplace that matches schools selling “shares” of their students’ ISAs with accredited investors. Ricciardi envisions that the market for ISAs could replace the entire $10 billion private loan market and then some, growing to at least $20 billion.
Students as a promising asset class.