PDA

View Full Version : Student Loans idea - Private Sponsorship/Investment



Lallante
December 5 2012, 11:47:10 AM
So I've had this investment business idea kicking about for some time, and it goes like this:

Private Investment in Outstanding Undergraduate Students

Essentially this would work like a long term equity fund, but instead of a fund manager (the "Fund Manager") carefully selecting shares to invest in, they would invest in students (the "Fund").

Selection of applicant students (pre-university up to 1st year) would be carried out by the Fund Manager, using a series of rigourous tests, applications and interviews, and be focused on specific, high-salary career-linked degrees. Selected students (the "Investee Student") would be those most likely to be successful in their pursuit of a high paying career.

The Investee Student would sign an agreement ("Investment Agreement") with the Fund and in return be given a generous grant by the Fund covering their university costs (including all books, transport, housing etc), and heavy assistance finding a career once finished with university.

The Investment Agreement would state that the Investee Student would pay [Y] percentage of their earnings for the next [X] years directly to the fund. This would -not- be a repayment of debt (there would be no debt crystallised unless the student defaulted on the terms of the agreement) but a commission/return on investment.

The Investee Student would not be obliged to go into a specific career, and would not be required to pay back anything if their income is lower than a threshhold (much like current UK student debt), as such provisions would likely be unenforceable in any case.

The Fund Manager would therefore be relied upon to accurately pick Investee Students that were sufficiently able and ambitious to obtain high paying jobs, and would be incentivised to provide all the support necessary to ensure that the Investee Students succeed.

As a student, the attraction of this is obvious (depending on Y and X of course). The key question would be how reliably high salary could be predicted pre-university. Obviously we know the link between university degree and high salary is limited in general, but this is far less so when only looking at the very top tiny fraction of the elite (betting on a Oxbridge law or economics & management student is a pretty safe call). The more successful the student, the better the return on investment.

Thoughts?

elmicker
December 5 2012, 11:50:28 AM
As madcap as it sounds, it's not unlike what multinationals and top corporates already do. I lived with a lad in first year who had P&G matching everything the government gave him (plus summer placements) on the condition he joined them once he'd finished his MEng.

CastleBravo
December 5 2012, 11:59:20 AM
Perhaps an even better idea would be the school itself providing the investment in the students, making the school dependent upon the students' success.

Max Teranous
December 5 2012, 12:15:05 PM
One issue would be guaranteeing the people you sponsor actually giving you the money back. The government (here in the UK and in the US) have stopped bankruptcy from discharging student loans, but that's their special loans, not what is ultimately an unsecured loan from a bank/company. After all a persons ability and working life is not an asset, well at least not since slavery was abolished :p In a doctors case the financial assistance you suggest could easily hit 6 figures, at that point the pain of personal bankruptcy is a very attractive option, as doctors don't lose their jobs if they go bankrupt. Combined with the challenge of "picking winners" and the fact you're talking alot of upfront investment capital that'll be tied up for a long time I don't think the return would be there for an acceptable level of risk.

Max 8-)

Lallante
December 5 2012, 01:44:27 PM
Perhaps an even better idea would be the school itself providing the investment in the students, making the school dependent upon the students' success.

Thats how my version of the graduate tax would have worked - the grad tax would be payable back to the university they went to only. The problem with this is that is cant really be the main source of university funding because otherwise "noble" but "non-economic" degrees would be devalued (the arts, philosophy, theology, english and even some sciences, and anything aimed at going into academia or research).

Thats why it works well as a private scholarship concept, where public policy aims (such as encouraging the above devalued degrees) dont need to be taken into account.

Lallante
December 5 2012, 01:46:31 PM
As madcap as it sounds, it's not unlike what multinationals and top corporates already do. I lived with a lad in first year who had P&G matching everything the government gave him (plus summer placements) on the condition he joined them once he'd finished his MEng.

Yes so its this, but on a wider scale, and from earlier, and through a specialist for-profit fund.

Lallante
December 5 2012, 01:50:15 PM
One issue would be guaranteeing the people you sponsor actually giving you the money back. The government (here in the UK and in the US) have stopped bankruptcy from discharging student loans, but that's their special loans, not what is ultimately an unsecured loan from a bank/company. After all a persons ability and working life is not an asset, well at least not since slavery was abolished :p In a doctors case the financial assistance you suggest could easily hit 6 figures, at that point the pain of personal bankruptcy is a very attractive option, as doctors don't lose their jobs if they go bankrupt. Combined with the challenge of "picking winners" and the fact you're talking alot of upfront investment capital that'll be tied up for a long time I don't think the return would be there for an acceptable level of risk.

Max 8-)

That would be the risk element, and why "Fund Manager" skill would be important, but fundamentally this is a quantifiable risk you can therefore price in (e.g. over time you determine that 1 in 10 students defaults/declares bankruptcy therefore you raise the % taken by 10%). This is also the main incentive on the Fund Manager, and the main determinant of his pay/bonus.

Also though I'm not certain on this, as the agreement wouldnt be structured as debt and would not become enforceable unless you were earning over a threshhold, I'm not certain bankruptcy would allow you to escape it.

As I've said above, I'm not proposing control over what work (or no work) the student does. Theres no dodge slavery analogy to be drawn.

CastleBravo
December 5 2012, 04:18:16 PM
One issue would be guaranteeing the people you sponsor actually giving you the money back. The government (here in the UK and in the US) have stopped bankruptcy from discharging student loans, but that's their special loans, not what is ultimately an unsecured loan from a bank/company. After all a persons ability and working life is not an asset, well at least not since slavery was abolished :p In a doctors case the financial assistance you suggest could easily hit 6 figures, at that point the pain of personal bankruptcy is a very attractive option, as doctors don't lose their jobs if they go bankrupt. Combined with the challenge of "picking winners" and the fact you're talking alot of upfront investment capital that'll be tied up for a long time I don't think the return would be there for an acceptable level of risk.

Max 8-)

An employed doctor or anyone else making good money would fail the means test for a chapter 7 bankruptcy.

ValorousBob
December 6 2012, 03:08:33 AM
Well I have two hypothetical/philosophical issues that immediately jump out at me.

1) This is basically letting profit motive creep further into the education system. This is highly dangerous and I'm opposed to this in *almost* every situation.
2) You're basically asking KIDS to decide what they want to do with their lives. Many will not be ready for this even if they think they are.


Selection of applicant students (pre-university up to 1st year) would be carried out by the Fund Manager, using a series of rigourous tests, applications and interviews, and be focused on specific, high-salary career-linked degrees. Selected students (the "Investee Student") would be those most likely to be successful in their pursuit of a high paying career.

This, however, will be a serious roadblock. The SAT/ACT tests in America and equivalent tests in other countries are basically used to measure how successful a student will be in college and in life. The problem is that studies have repeatedly shown that there's very little correlation between standardized test scores and college/career success. Scientists have been trying for decades to devise tests that can predict success in the way you're talking about, and so far they haven't figured it out.

erichkknaar
December 6 2012, 05:54:54 AM
The number of kids who have been to (MIT, Cal, Stanford, etc) that we've had to retrain, because they don't know shit about how the practical application of their degree goes, is astounding. I've basically come to the conclusion that high end university degrees aren't really worth anything, other than showing that the candidate somehow (normally mommy and daddy) could afford it. We've had better luck with self taught or south Asian kids. Not investing.

Lallante
December 6 2012, 09:09:04 AM
Well I have two hypothetical/philosophical issues that immediately jump out at me.

1) This is basically letting profit motive creep further into the education system. This is highly dangerous and I'm opposed to this in *almost* every situation.
2) You're basically asking KIDS to decide what they want to do with their lives. Many will not be ready for this even if they think they are.


Selection of applicant students (pre-university up to 1st year) would be carried out by the Fund Manager, using a series of rigourous tests, applications and interviews, and be focused on specific, high-salary career-linked degrees. Selected students (the "Investee Student") would be those most likely to be successful in their pursuit of a high paying career.

This, however, will be a serious roadblock. The SAT/ACT tests in America and equivalent tests in other countries are basically used to measure how successful a student will be in college and in life. The problem is that studies have repeatedly shown that there's very little correlation between standardized test scores and college/career success. Scientists have been trying for decades to devise tests that can predict success in the way you're talking about, and so far they haven't figured it out.

You wouldnt just use standardised tests, they would just be the first hurdle. Interviews would form the main element.

ValorousBob
December 6 2012, 09:56:58 AM
Actually, after reading your post, I don't think you need tests at all. What would you test them on anyways? If you're going after the top tier students as you explained in your last paragraph, they already have phenomenally high test scores. What you'd need was some sort of personality test/rigorous interview process to determine whether these kids were the future proverbial "sharks" of the business world, or hippy kids like me who don't give a fuck about money.

This actually just made me realize something else. If you're going after the top tier kids, why would they choose you? What are you offering them that a kid with straight A's and high test scores can't get somewhere else? After all, there's tons of scholarships that are gonna do the same thing you are (give them assloads of money), but with no strings attached. Why would they agree to forfeit a future percentage of their income for college money? And btw, if these kids are smart enough to be worth investing in, many will be likely cocky enough to assume they'll be fine on their own.

To solve this problem you'd have to somehow find the kids that no one else sees potential in. You'd also have to have a proven method for doing this, or your operation would be so high risk no one would invest (this is like a mutual fund thing where other people give you their money to invest right?). But now we're back full circle to what I brought up before; the decades long effort by scientists, academics, the military, etc to find a way to measure potential in people.

Lallante
December 6 2012, 11:50:16 AM
Actually, after reading your post, I don't think you need tests at all. What would you test them on anyways? If you're going after the top tier students as you explained in your last paragraph, they already have phenomenally high test scores. What you'd need was some sort of personality test/rigorous interview process to determine whether these kids were the future proverbial "sharks" of the business world, or hippy kids like me who don't give a fuck about money.

This actually just made me realize something else. If you're going after the top tier kids, why would they choose you? What are you offering them that a kid with straight A's and high test scores can't get somewhere else? After all, there's tons of scholarships that are gonna do the same thing you are (give them assloads of money), but with no strings attached. Why would they agree to forfeit a future percentage of their income for college money? And btw, if these kids are smart enough to be worth investing in, many will be likely cocky enough to assume they'll be fine on their own.

To solve this problem you'd have to somehow find the kids that no one else sees potential in. You'd also have to have a proven method for doing this, or your operation would be so high risk no one would invest (this is like a mutual fund thing where other people give you their money to invest right?). But now we're back full circle to what I brought up before; the decades long effort by scientists, academics, the military, etc to find a way to measure potential in people.

A mentor and an "in" to the business world are exactly the sort of thing a high-achiever is always looking for. You can't have too many contacts or too extensive a business network.

Getting the top jobs is still incredibly competative even with a first class honours from Oxbridge - noone is THAT good at age 18 let alone that confident.

Rans
December 6 2012, 02:20:56 PM
I see a few problems with your plans:

The students

The selection mechanism would be very difficult, would take quite a bit of time and money and qualified personnel. The kind of students you are looking for are extremely ambitious, the type that have no problems in getting good scholarships/internships and no real need to become indebted at a young age.

How would you make students pick you? Promising career help will not be enough, considering their skills they will attract a lot of attention from corporations from the start. How would you advertise it? I doubt the government would really like a plan like this.

How do you fight against the constant losses? People giving up, not performing as well as you wanted, changing careers after 1-2 years, etc? It's hard to call it an investment when it is obvious a lot of money will be lost on this type of issue. Students are not machines, they give up, get discouraged, etc.


The Fund

How do you find someone capable to run it? You described professor Xavier from X-Men, you'd need a big staff to constantly test new students, to follow the academic progress of the ones you already have, give constant advice, keep them motivated, make sure they're part of all the cool projects and so on. Once they go abroad to study it becomes even more difficult to keep track and give advice. This staff would have to be highly competent and that's not cheap.

You say you will not force students down a career path but how would you have all the professional contacts you need to help your students get that 1st 120k/year job? Why would a company pick your student over someone else?

So imho this fund would only work only if it's loosely based on rich people donating to the fund to help good students become successful in their careers.

I don't see how it could be profitable, what kind of % they'd have to pay back and over what time, it seems bank would be a better choice.

You're trying to help the type of students that can already do a lot by themselves.

Lallante
December 6 2012, 10:06:50 PM
I see a few problems with your plans:

The students

The selection mechanism would be very difficult, would take quite a bit of time and money and qualified personnel. The kind of students you are looking for are extremely ambitious, the type that have no problems in getting good scholarships/internships and no real need to become indebted at a young age.

How would you make students pick you? Promising career help will not be enough, considering their skills they will attract a lot of attention from corporations from the start. How would you advertise it? I doubt the government would really like a plan like this.

How do you fight against the constant losses? People giving up, not performing as well as you wanted, changing careers after 1-2 years, etc? It's hard to call it an investment when it is obvious a lot of money will be lost on this type of issue. Students are not machines, they give up, get discouraged, etc.


The Fund

How do you find someone capable to run it? You described professor Xavier from X-Men, you'd need a big staff to constantly test new students, to follow the academic progress of the ones you already have, give constant advice, keep them motivated, make sure they're part of all the cool projects and so on. Once they go abroad to study it becomes even more difficult to keep track and give advice. This staff would have to be highly competent and that's not cheap.

You say you will not force students down a career path but how would you have all the professional contacts you need to help your students get that 1st 120k/year job? Why would a company pick your student over someone else?

So imho this fund would only work only if it's loosely based on rich people donating to the fund to help good students become successful in their careers.

I don't see how it could be profitable, what kind of % they'd have to pay back and over what time, it seems bank would be a better choice.

You're trying to help the type of students that can already do a lot by themselves.

Meh, 75% + of all students starting a Law or Economics and Management course at Oxbridge are going to be high earners 6 or so years later and very high earners a decade later. You wouldnt do those courses unless that was your aim. Not many people drop out or change their mind from those courses. I'm pretty sure you could pick out most of the other 25% in interview.


Taking just my law class (as it was on entry to university) from my college (which from my experience is not atypical:

11 started. Lets assume the fund lends 30k per student (easily enough to pay tuition and live on for 3 years when + student loan).
1 went abroad (not sure of outcome, lets assume fail to be safe), but was foreign and clear about this aim from the start (so wouldnt be recruited - not a loss)
1 went to the US to work for a charity (but had initially wanted to be a high flier) - this guy would be a loss for the fund.
1 works low end IT jobs for small companies. Lets assume he earns below 25k and never will earn above it (not true but for the sake of arguement. He never wanted to go into big law but might have been able to bullshit to the fund - lets call him a loss.
2 became barristers and therefore are earning very good money and very unlikely to switch careers (very niche skills), huge return on investment already (lets say fund takes 2% above 25k a year - these guys are already on 6 figures so fund would be getting upwards of 1500 from each of these guys yearly, escalating way above inflation, and will do so for the next 40+ years.
6 became top tier solicitors and are all earning 75k ish - Fund earning 1000 a year per person rising yearly again way above inflation. Some of these will probably quit sometime in the next 10 years to have babies, take less demanding jobs etc (though they will all likely retain decent 60k+ salaries)

So fund income is currently 9000 a year aleady, and this is escalating and will last 45 ish years. This is on a spend of 300k, i.e. a 9% annual return escalating way above inflation for 45 years. After a decade its not unreasonable to expect all the salaries to have more than doubled, similarly increasing the return (and still representing an increase on 9% even if 2-3 people quit for lower paid work) Tell me that isn't attractive?

And this is without any career help whatsoever and only the most minimal of selection criteria (asking "do you want to earn a lot of money for a corporate firm" to a load of undergrads in the right uni and subject).


Numbers are all out of my ass but its not hard to see how it could work. Would I have taken a 30k grant in exchange for 2% of all future salary above 25k? I'd have thought damn hard about it. Lots of people now wont be able to go to uni at all if not for schemes like this - for them, what do they really have to lose?

Me
December 7 2012, 12:24:36 AM
I think you're overly complicating a matter that doesn't need to be.

Investing in the populous getting higher education is one of the easiest ways for a government to grow the economy and improving quality of life. All that it needs is a system similar to what we have in Australia, degrees for Australian nationals are highly subsidised by international students who's fathers in China fork out silly money for their education (my degree is indirectly funded by corrupt officials in the Chinese Communist Party :D). Then the fraction that is left for an Australian to pay is either given more discount if you pay up front, or put on an inflation tied loan which payment is taken by the tax office when you earn over a not insignificant amount per year. All students get fortnightly payments from the gubment to study (well it's means tested, but it's not exactly hard to get around that legitimately). Only thing that needs changing is reducing the dole and increasing student payments, it's ridiculous that dole bludgers get double what students get. I also get a government scholarship each semester and I'm not even a good student. I haven't worked a day during this degree and I've never gone without anything for want of money (well I couldn't afford to go with a mate to Europe for a few months but that hardly counts.)

Anyone who says they can't afford higher education in this country is full of shit.

All that pays off for the gubment in higher future taxes and for the country in a skilled workforce. Why drag private enterprise into something that is ideally made for government support?


Plus, a good chunk of local people in my degree (commerce) are employed in public service or other white collar jobs and doing the degree to further their career. Their employer pays education costs and gives paid time off to go to classes/study/exams/etc and the employer gets a better employee out of it and the employee gets a free education and a good income while doing it. I probably should have done that, but I'm already 25 and I wanted this degree done before my mid 30s.

SteeleResolve
December 7 2012, 12:05:10 PM
Open university whilst employed full time.

It's what I did, and although the costs have gone up somewhat, it should be achievable for anyone on minimum wage. Not everyone's cup of tea I know, and not every course is available by any means, but it's a valid option for the young with less potential.

Sorry for mild derail.

Sacul
December 7 2012, 06:11:51 PM
This idea has a modern twist to a guild to it, apprenticeship but also a faustian feel. All terms ment in the 19th century sense.

e:
thinking about it its servitude, i think thats the correct english term i was looking for.

Rakshasa The Cat
December 8 2012, 08:47:10 AM
Just do what they do in Norway's University of Oslo; everyone gets student loan and theres no school fees, getting in is very easy even for the math/physics/comp.sci faculties.

However you're required to take a course in philosophy which basically goes through all the major ideas leading up to modern western science. And the exams are rather difficult. So about a third of the students drop out from the more difficult subjects.

So your high school grades and such don't matter that much, if you're good you graduate.

Lallante
December 10 2012, 09:29:45 AM
This idea has a modern twist to a guild to it, apprenticeship but also a faustian feel. All terms ment in the 19th century sense.

e:
thinking about it its servitude, i think thats the correct english term i was looking for.

Its not servitude if you aren't bound to do the work. Thats the whole point

Pacefalm
December 19 2012, 09:39:08 PM
Which students would want to join the system though? Correct me if I'm wrong, but it comes down to "you get X amount now, and pay Y% of your post-grad salary". This would be as an alternative to "you get X amount now, and pay X amount+interest back over time" (conventional loan). In both cases you get X, but the repayment method differs. Assuming students are rational, why would they want to choose the first option?

A reason would be if they expect the sum of all Y% of their salary to be less than X+interest, meaning a loss for the fund. The only other reason I can think of would be as an insurance, that IF they (after graduating) cannot get a well paying job, they would not have to default on the loan. But, the fund will specifically target students that have a high chance of getting a well paying job in the first place, so this group would be filtered out.

Of course, people are not always rational, but to me there seems to be little reason to participate, especially considering student loans generally have a low interest rate. Ideally a higher education should be heavily subsidised and at little to no cost for the student, with no need for grants and funds and loans etc. The government will in the long run benefit more from a highly educated workforce anyway.

Lallante
December 20 2012, 02:35:44 PM
Which students would want to join the system though? Correct me if I'm wrong, but it comes down to "you get X amount now, and pay Y% of your post-grad salary". This would be as an alternative to "you get X amount now, and pay X amount+interest back over time" (conventional loan). In both cases you get X, but the repayment method differs. Assuming students are rational, why would they want to choose the first option?

A reason would be if they expect the sum of all Y% of their salary to be less than X+interest, meaning a loss for the fund. The only other reason I can think of would be as an insurance, that IF they (after graduating) cannot get a well paying job, they would not have to default on the loan. But, the fund will specifically target students that have a high chance of getting a well paying job in the first place, so this group would be filtered out.

Of course, people are not always rational, but to me there seems to be little reason to participate, especially considering student loans generally have a low interest rate. Ideally a higher education should be heavily subsidised and at little to no cost for the student, with no need for grants and funds and loans etc. The government will in the long run benefit more from a highly educated workforce anyway.

The trade off is more money now and a much longer repayment period with lower repayments. This means you are more comfortable throughout, even if you end up paying more eventually.