Stay up to date on our entrepreneurs, events, research and more. Check out our October newsletter here.
In a new opinion article on the New York Times blog, “Instead of Student Loans, Investing in Futures,” journalist David Bornstein questions “whether there may be a better way to pay for college than with scholarships, grants, and loans. Is it possible to finance higher education the way we finance startup companies?”
As an example of this approach, he profiles Lumni, a Colombia-based social enterprise run by Endeavor Entrepreneur Felipe Vergara, who was recently named the 2011 Latin American Social Entrepreneur by the World Economic Forum.
Bornstein points out that the organization has raised $17 million to fund the education of students across Latin America (Chile, Colombia, and Mexico) and the United States by offering “human capital contracts.” He uses the example of a Colombian student who, in exchange for his tuition fee of $8,500, agreed to repay Lumni 14 percent of his salary for 118 months after graduation.
Lumni has provided its unique form of financing to 1,900 students. As Bornstein points out, “fifty five percent of them are women and 90 percent are the first in their families to attend college…So far, the default rate is under 3 percent.”
Bornstein argues that Lumni offers a compelling model that, like insurance, spreads the risk among multiple parties while accomplishing steady returns. He concludes: “Economists are skeptical about human capital contracts — which were first proposed by Milton Friedman in the 1950s — because they have many potential problems and little track record. But Lumni seems to be making them work — at least on a small scale.”
“The most important asset in the world is people,” Felipe Vergara is quoted as saying. “But modern society hasn’t organized itself in a way to invest in most people. I like to think of Lumni as a springboard that allows people to pursue their dreams — it offers a way out of a situation where the ceiling is very close to your head.”
Also, check out Bornstein’s follow-up opinion piece which sheds further light on Lumni and human capital contracts, and responds to reader comments.
© 2015 Endeavor Global, Inc.
All Rights Reserved
Endeavor Global, Inc.
900 Broadway, Suite 301
New York, NY 10003
1 (212) 352-3200
Site by #BRITEWEB