Tuition Bills and Indentured Servitude

Written by nickel - 4 Comments

I just ran across an interesting method of covering your tuition bills in an article on alternative ways of paying for college over at BankRate.com… They offer a number of alternative methods for paying for your schooling, but by far the most interesting of these was a service called MyRichUncle.com…

There’s not a whole lot of information at their site — just a bunch of gibberish about their ‘revolutionary’ scoring system, yadda, yadda, yadda. But according to the BankRate article:

MyRichUncle provides money from private investors to college students who need help with education expenses.

In return, a student agrees to pay a fixed percentage of their gross future income for a fixed period.

“They pay less when they make less,” says Raza Khan, managing director of MyRichUncle. “They pay more when they make more.”

This is an education investment not a loan, so there’s no interest to pay.

For every $1,000 of financial help, a student agrees to pay 10 to 40 basis points of future income. A basis point is one one-hundredth of a percentage point, so someone who receives an education investment of $10,000 might agree to pay anywhere from 1 to 4 percent of future income.

Payment periods are 10 years for graduate students and 15 years for undergraduate students. Payments begin six months after graduation.

Once the payment period ends, a student’s obligation ends even if you end up paying back less than you were given.

“We’re actually taking a chance on a student,” Khan says. “If a student succeeds, we succeed.”

This sounds like an interesting idea, but I’m not sure how I’d feel about being an indentured servant once I got out of school. This is fundamentally different from standard student loans, as you don’t seem to have the ability to accelerate your payments to rid yourself of the obligation. I guess such a plan could have a weird sort of upside, though — if you end up in a low paying deadend job after graduation, you could come out far ahead in terms of the cost of your college education.

Published on May 17th, 2005 - 4 Comments
Filed under: Miscellany
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Comments (scroll down to add your own):

Not only that, but you don’t run the risk of ruining your credit the way a lot of folks do with student loans. (I graduated into a recession, just barely shy of $100,000 in the hole and watching folks in my field with years of experience getting laid off left and right. After years of being hounded by student loan collectors educated at the Bruno & Guido High-Impact Collections Academy, I’ve finally gotten them all paid off, but now I’m wondering whether they’ll roll off the back of my credit report before I’m too old to qualify for a mortgage on a house.)

Between 1% and 4% would have been a gift from fantasyland, in the days when 80% of my take-home pay was going to collection agencies. _That_, mon ami, is what modern-day indentured servitude looks like.
Comment by Matt — May 18th 2005 @ 3:45 am
Matt: Thanks for your insight. Sounds like this might have worked out well for you.

Comment by nickel — May 18th 2005 @ 9:06 pm
A risky business for the investors. Very fair. Very honorable.
Comment by Jose Anes — May 26th 2005 @ 1:36 pm
I don’t see this taking off in the US. For me, saving for college is like dieting; you just have to make the decision one day to sacrifice a little to gain a lot. That simple.

I am a big fan of the safe college investment products on the market. No sense gambling here.
Comment by Dan Davenport — Feb 22nd 2006 @ 1:18 pm