The Student as Startup
It's always puzzled me why the left -- in the face of efficient and dynamic distributed networks in everything from entertainment to personal finance to friendships to philanthropy -- insists on seeing only a 1970's-style big government top-down solution to every social problem.
In every aspect of our lives -- except the ones that involve the government -- we're allowed to customize and tailor our choices. We set our preferences. We connect with other like-minded people.
Now, comes an interesting venture called Upstart, from an former Google executive. It's a way to fund promising young people:
Upstart allows you to raise capital in exchange for a small portion of your future income. It’s a new and very different service, but it's not for everybody. By becoming an upstart, you are telling the world and your backers that you want to build a compelling and worthwhile career. And you’re committed to repaying the backers who have taken a chance on you.
It's not the most lucrative investment for the backers, but it's fair and has the unique benefit of being meaningful. This is a contract:
Share a small percent of your income as reported on your tax returns for 10 years. Your payments are capped at a 14.99% annual return to backers, regardless of your success. And you can also choose to buy out of your obligation early. You defer payments entirely in years you earn less than $30,000 or go to school full time. However, one year will be added to the length of your contract - up to a maximum of 5 years.
This seems like an exciting -- and market-based -- solution to a real problem. Kids are leaving school saddled with debt, and tend to avoid riskier and more entrepreneurial ventures -- just when they're at the perfect time of life to jump into a startup.
The left would -- and has -- responded to this by creating a National Task Force or a Federal Administration or a government-sponsored bank.
Upstart does it using a distributed network of backers and a dead-simple contract.
Which one is going to be more effective? For the students who get backed and for the American economic future?
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Comments:
Mar '11
Re: The Student as Startup
Err, possibly because the Left are Socialists, or Marxists?
Which is more effective? At a rough guess, Capitalism - which is allegedly why Mr Obama hates Mr Romney.
Mar '11
Re: The Student as Startup
Woah! I love this idea.
Bold (nothing like this exists despite glaring need), market-oriented (yeah, that 14.99% is a bit high...), cuts through institutional (banking) and bureaucratic (govt) red tape to loans, and is tech-savvy and forward looking.
I'm with you, Rob, this sort of thing--if they manage to turn a profit for the investors and the students manage to build successful businesses from the seed capital--could make a huge impact.
Mar '11
Re: The Student as Startup
Didn't they used to call this indentured servitude? I don't necessarily mean that perjoratively. When I was in college 20+ years ago we joked about this all the time. Joked because we didn't think it feasible. But I tell you, I would have been very tempted to go for it!
Jul '10
Re: The Student as Startup
In indentured servitude you lost all right to your own labor. Here, you owe at maximum %14.99; high, but hopefully rates are negotiable.
It's really a brilliant idea, a fusion of patronage and venture capital.
Mar '11
Re: The Student as Startup
Rob Long: the left ...insists on seeing only a 1970's-style big government top-down solution to every social problem.
This is it. This is how Romney grabs young voters.
Obama's ideas are tired, old, and unfit for the modern world. He promised something new but gave us 1978. It didn't work then and isn't working now. Time to overhaul the government.
Obama's Government:
Romney's Government:
May '12
Re: The Student as Startup
An interesting variation of the Kickstart idea.
I also find it interesting how all of these new ideas of circumventing government assistance are popping up. Perhaps the way to small government is just out-competing it and thus rendering it unnecessary, at least in some areas.
Dec '10
Re: The Student as Startup
I can tell you why the left would be hostile to this idea. I teach in the engineering department at a Cal state university, and I see it every day.
You can get Upstart funding if you major in math or science or engineering or economics. But how many backers do you think you can scare up for a Woman's Studies major?
The college funding racket these days is nothing but a way to keep the useless, arch-leftist college departments funded. I have students that work hard at their day jobs and take engineering classes in their time off. Nobody works their way through college for a degree in La Raza Studies or French Lit. You have to pay people to take those classes.
The Upstart program would introduce the idea of meritocracy to modern education. And I promise you, college administrators will do absolutely anything to prevent that.
Mar '11
Re: The Student as Startup
Seriously, this type of notion was so obvious and appealing to me years ago that I assumed it must be illegal or else would already be popular. Another side benefit might be that worthless degrees would wither for lack of "investment" because there would be little reward opportunity. Where gov't backed loans are equally applicable to Art History or Engineering, this would tend to stick the money where it is most efficient.
Dec '10
Re: The Student as Startup
The problem is that shortly into the repayment period, a number of participants will sue, citing the 13th Amendment. And a judge will rule in their favor -- the lack of merit of their case notwithstanding.
Oct '10
Re: The Student as Startup
As a practical matter, only the government is allowed to offer loans secured by future income (student loans, to be exact), as this sort of private loan is fairly easy to ditch in bankruptcy court.
May '10
Re: The Student as Startup
Don't patronize me!
No, wait — please patronize me!
Re: The Student as Startup
Starve the Beast: I can tell you why the left would be hostile to this idea. I teach in the engineering department at a Cal state university, and I see it every day.
You can get Upstart funding if you major in math or science or engineering or economics. But how many backers do you think you can scare up for a Woman's Studies major?
The college funding racket these days is nothing but a way to keep the useless, arch-leftist college departments funded. I have students that work hard at their day jobs and take engineering classes in their time off.Nobodyworks their way through college for a degree in La Raza Studies or French Lit. You have to pay people to take those classes.
The Upstart program would introduce the idea of meritocracy to modern education. And I promise you, college administrators will do absolutely anything to prevent that. · 1 hour ago
I think you're exactly right. But I'm excited to see it unfold.
May '10
Re: The Student as Startup
Jul '11
Re: The Student as Startup
Why sue? It would be much easier to claim bankruptcy after graduation and thus shed all debt and allow them to start life with a blank slate. Upstart is investing in an education but this is not an asset that can be foreclosed on. It is not like a brain can be repossessed.
Aug '10
Re: The Student as Startup
My works at an elementary school, and there have been several kids pass through her classes that caused us to think, "Wow, we should invest in that kid."
You an spot future successes as early as 2nd grade.
Oct '10
Re: The Student as Startup
I recall thinking back when I was at university (class of 1971) that indenture was the perfect model for funding education. You make some down-payment (non-dischargeable, in order to have “skin in the game”), and you engage to pay some fraction of your after-tax earnings until a ceiling is reached. This would be 100% free market—a university might offer a contract with no down-payment in return for no cap and a fraction of your estate. All of the numbers would be negotiable between the educational institution and the student.
This system would simply be an additional option for funding education: those with the means could pay outright, and the credit-worthy could borrow the funds from lenders in the market. In any case, tuition would be quoted and fixed: the scam of “financial aid” (in other words, pricing the product to extract the maximum from each customer [which would land any other vendor in the slammer under antitrust law]) would be abolished.
The delightful consequence of this, as noted by previous commentators, is that “junk degrees” and the departments that grant them would evaporate like the morning dew on Mercury.
Jan '11
Re: The Student as Startup
I distinctly remember Thomas Sowell discussing this idea in a column about The Economics of College back in 2008, with the point that this will allow students to do the equivalent of issuing stocks in themselves, rather than bonds. The necessary part of the idea, of course, is to make the agreement an enforceable contract. The discussion now seems to be centering on whether this is even possible in this day and age. Given the direction the country has been taking, will any contract ultimately be enforceable, or will it all come down to the whims of our government overlords?
Apr '11
Re: The Student as Startup
I don't I'm not sold on the idea that this is some how better than just the old loan system? The problem with modern loans is that they are too subsidized and can not be defaulted in case of financial distress. This leads to a glut of students in fields that have less earning potential assuming debts equal to students in fields with high earning potential. If you just let normal debt rules apply you would deflate the bubble.
The one thing I can see going wrong with this kind of scheme is not that people will get out of it, but rather that people may never be able to get out of it. I mean why not offer a deal where the backer gets 1% of income but for life or nearly life. I can see a lot of reckless youths signing up for some kind of Mephistophelian loans. I mean isn't this just another kind of indentured servitude? Can you just sell stock in yourself so much that you can essentially become a slave? Color me skeptical.
Aug '10
Re: The Student as Startup
Actually, I read the fine print. The max rate of return for your investors is 14.99%. The student is agreeing to repay at a rate up to 7% of his income - based on the money he raised from backers.
Edited on August 10, 2012 at 4:00pm