JUST ANOTHER COMMODITY:

Fortunately, private capital is beginning to return to the market, offering growing numbers of students attractive financing options, as well as providing invaluable market feedback to students and policymakers alike. This is happening through still-developing innovative financing models that -- similar to the crowdfunding model used by startups to raise capital -- leverage the internet, accredited investors, and online communities. These models also hold the promise of providing critical market feedback through product pricing and data analytics, based on outcomes of different education paths and programs. 

 The first model, pioneered by new ventures such as Upstart and Pave, rejects debt altogether and instead allows "accredited" investors (high income or net-worth individuals) to invest in an individual through what's called a "human capital contract." In these agreements, contracted between individuals and investors, the individual promises to share a percentage of his or her income with the investor over a fixed period of time in return for up-front money to finance or refinance education costs. This model shifts risk from the individual to the investor, whose return depends on the future earnings of the individual.  

Promising graduates are now using this model to pay off existing student debt, freeing themselves to embark on an entrepreneurial initiative, pursue further education, or seek a job that aligns with personal or career objectives. Students or graduates may also benefit from mentorship provided by investors who have an interest in the student or graduate's success. Questions remain regarding the ultimate scalability of this model, however, because students who plan to pursue non lucrative career opportunities may self-select into this model where overall repayments to investors will be smaller than total repayments under a traditional loan.  

Another promising model does rely on debt, but offers students at leading universities and graduate schools compelling rates for refinancing existing student debt, or potentially undercutting federal rates that may rise in the future (due to Congress' recent decision to permit the rate to float). San Francisco-based SoFi is the largest of these platforms, having lent $140 million to students at 100 schools; it allows investors who are alums of particular schools to pool their money and lend to current students, or to recent graduates seeking to refinance their existing loans at lower rates. Here, too, students may benefit from mentorship and even job opportunities provided by the alumni investor network.  

Perhaps the most important aspect of both innovative financing models is the real-world market feedback they provide on the value of particular forms of education.

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