Posted Jun 25, 2012 10:30 am CDT
A University of Chicago law professor is pointing out some securities problems in a proposal to finance education with a venture capital model.
The proposal by University of Chicago professor Luigi Zingales is for investors to finance college education in exchange for a fraction of students’ future incomes—or perhaps a fraction of the increase their incomes because of their college attendance.
Writing in the New York Times, Zingales said traditional student loans are costing taxpayers billions of dollars and boosting the cost of higher education. Financing education through equity contracts, he said, would provide an incentive for financiers to counsel students wisely and create informed demand for schools. Financiers could collect on their contracts with the help of the Internal Revenue Service, Zingales suggested.
The proposal generated a flurry of letters to the editor. A recent Yale University master’s graduate worried that financiers could take grads to court for failing to make prudent decisions. University of Chicago law professor M. Todd Henderson also weighed in, saying he supports Zingales’ proposal but sees some legal problems.
“Issuers of equity—the students, in this case—must comply with onerous rules of the Securities and Exchange Commission before they may sell an interest in their future to investors,” Henderson writes. He suggests the law would have to be changed to allow for the equity financing.