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I like this idea, but adverse selection is a huge unsolved problem and heavily subsidized loans crowd out the alternatives. If you're a talented student with re
by ecmendenhall 14y ago
I like this idea, but adverse selection is a huge unsolved problem and heavily subsidized loans crowd out the alternatives. If you're a talented student with reason to expect high future income (and your education isn't already paid for with merit aid), why would you choose equity over very cheap debt?
I wonder if this model could work on a smaller scale, much like a startup incubator: find talented students who would otherwise attend cheap state schools, pay for a prestige degree at an Ivy, and take a share of future income. Like an incubator, it would be in the investor's interest to provide mentorship and help students find high-paying jobs. But again, there's an adverse selection problem. Why not just offer the same students loans, and why would a talented student sell equity?
If anyone has $200m lying around, I'd be interested in running this experiment. Its success would also depend on whether college is more about learning things or signaling status.
- pjscott 14y ago> If you're a talented student with reason to expect high future income (and your education isn't already paid for with merit aid), why would you choose equity over very cheap debt? How much equity? How much debt? The amount of equity depends on the student's expected future income as well as the cost of school; the amount of debt depends only on the cost of school and the risk of default. An equity stake in such a student has a higher value than an equity stake in a mediocre student, so if an investor can tell what students look most promising, they'd have an incentive to offer education money in exchange for a smaller amount of equity. If the equity stake is small enough, then the lower risk (to the student) relative to loans may well cause the student to choose to sell equity rather than take out a loan.