Afraid of student-loan debt? Sell stock in yourself instead

NEW YORK — In 1954, Milton Friedman laid out a radical new plan for funding education in a footnote to a lengthy academic volume. He described a system where individuals would sell ‘‘stock’’ in themselves — i.e., a share of their future earnings — to investors who would finance their education and training. ‘‘The purchase of such ‘stock’ would be profitable so long as the expected return on investment in training exceeded the market rate of interest,’’ he and his coauthor, Simon Kuznets, wrote.

Sixty years later, the lending system Friedman envisioned is beginning to take shape. Income share agreements — contracts that allow investors to give individuals money upfront in exchange for a percentage of their future earnings — are quietly gaining a following among critics of the nation’s staggering student-debt problem. New companies such as Upstart, Pave, and Lumni have turned to the investing-in-people model to help talented individuals secure funds for anything from education to business ventures.

Last week income share agreements, or ISAs, came into the national spotlight when Senator Marco Rubio, Republican of Florida, and Representative Tom Petri, Republican of Wisconsin, introduced legislation that could broaden the use of such investment vehicles by formally defining their terms.


The Investing in Student Success Act would provide a necessary legal framework for ISAs so that investors and fund seekers alike would know exactly what they were signing up for. The bill specifies the maximum length a contract can last (30 years) and the cap on income a fund seeker can owe (15 percent). The bill also formally states that an income share agreement is not a loan.

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‘‘This concept is quite innovative in its approach to financing college,’’ Petri said.

The basic theory behind ISAs is that they make life more manageable for the borrower because the debt is repaid in proportion to earnings. If an ISA recipient agrees to pay back 6 percent of his earnings over a five-year period, his monthly payments will vary according to his salary at any given time.

While proponents hope ISAs will give students with disadvantaged backgrounds better access to financing for education, it’s unclear whether that vision will pan out.