If you believe the current structure of the higher education system is sustainable, then I have some ocean front property in Cleveland to sell you! Current cultural expectations combined with intervention by the State in the student loan market have encouraged young adults to pursue a college degree at any cost. These conditions have left students saddled with mountains of student loan debt. Unfortunately, because the market has been so grossly distorted, degrees frequently do not lead to a vocation that yields sufficient funds to repay massive loans AND live a comfortable life. It is only a matter of time until the entire system comes crashing down making Universities comparable to ghost cities in China.
What will replace or provide an alternative to the broken system of higher education? An example of a possible replacement might be discovered in the story of a young woman who found the traditional debt ridden college path unattractive and chose an unconventional route.
Economic Policy Journal posted the note below, which was submitted to an auction website, 32auctions.com. In the note, Nineteen year old Sara reveals her desire to drop out of college and to place a portion of her income stream for auction in return for funds to start a business.
So how can I justify the cost of college?
I can’t, so even if it’s to the disappointment of my parents, after this term my college career will come to an end.
So what’s next?
Last year I helped my mom find an assisted living home for her mom.
It was an awful experience and one that lead me to create a map based senior living search engine, Senior Living Map.
It’s been a fun free time thing but it’s something I want to make it a full time thing.
I want to see what can become of the site if 100% of my time and energy is devoted to it.
How will I pay my bills?
I’ve decided to sell 10% of my (after tax) income for the next 10 years of my life.
I’m realistic enough to know that as a 19 year old female, with no proven track record, I have about a 0% chance of finding someone to invest in Senior Living Map.
So to up the stakes, I’m offering a piece of me.
I can’t guarantee Senior Living Map will be a success but I can guarantee that I will be.
So instead of asking you to “bet” on my first venture, I’m asking you to bet on me.
I’m asking you to bet and believe that in 10 years time, 10% of my income will be your best investment.
The winning bidder of Sara’s auction agreed to pay her $125,000 dollars for 10% of her income after taxes for the next 10 years. Who got the best part of the deal, Sara or the investor? It’s hard to say without knowing all of the circumstances surrounding her prospective business and her individual abilities. Her unorthodox agreement has the potential to be mutually beneficial to both parties. The investor will have a heightened interest in Sara’s success, due to future earnings being tied to Sara’s individual prosperity.
Our own editior-in-chief here at Lions of Liberty Marc Clair, posted the following scenario in the comments section of the above mentioned EPJ blog post.
Let’s say I’m Doogie Howser , only I’m a poor Doogie Howser and I’m dead broke. I live in “Freedomville” – there is no government to give me loans or subsidies to go to Med School, but I’ve clearly got the smarts.
So my 14 year old genius self posts up on the “Mind & Labor Market” website. I demonstrate my genius in various ways, and set a minimum bid (presumably the least I would need for tuition/room/board) to give my benefactor 10% of my income for the first ten years I practice medicine.
The winning bidder pays me $200,000. I go on to open up the best brain surgery practice in the Western Hemisphere. I earn an average of $500K every year for the next decade. My benefactor gets $50k/year for 10 years to talking $500K on his $200k investment. I’m a rich doctor, he makes 150% on his investment (tax free and inflation free in my government-less world!)”
Of course he risks that I get a heroin addiction and spend the rest of my life as a janitor, but that’s the market!
Marc’s fictional Doogie Howser rag to riches example provides a market driven alternative that could
become popular or necessary to replace the current centrally planned system. Already, in many fields the cost of a degree exceeds the benefits of employment gained. As this problem worsens more people will search for alternatives to the broken higher education system.
In the real life example of Sara and the fictional Doogie Howser example, each party has the potential to be rewarded. The contractual agreements have the potential to be mutually beneficial to both parties. How many agreements in your life are mutually beneficial to both parties? Is your college degree worth the total amount, including interest, you will pay for it? Is your house worth the extra hundred thousand dollars you will pay in interest to a bank before you “own” it? Who takes less risk and benefits more, you or the bank?
There are rewards Sara or Doogie could gain by selling their future income stream, which are not available or accessible in a traditional business loans. There is also great risk assumed by both parties in this unique agreement. Although, when risk is assumed by each party, responsible behavior is promoted.
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