Phi Beta Cons

Thomas Sowell Suggests Human Capital Contracts

In an excellent column, Thomas Sowell argues that we would greatly improve our allocation of resources if, instead of subsidizing college for most students, we took the government out of the picture and instead relied on human capital contracts, whereby students would contract for the funds needed for their education in exchange for a commitment to pay a certain percentage of their future earnings to the investors.

Several years ago, Miguel Palacios wrote a paper on this subject for Cato. I contacted him recently (he’s currently working on his Ph.D.) to ask him if his idea has gotten any traction and he said that it has both in Germany and Colombia. Later this year, he’s going to write about that for the Pope Center.
The best feature of such contracts is that it puts college to the test of the market. Unserious students who want to study unserious things would find it very difficult to find anyone willing to back their college experience.

George Leef is the the director of editorial content at the James G. Martin Center for Academic Renewal.