Marco Rubio's "New" Idea: Indentured Servitude

It's ironic that as the South Carolina legislature was debating the Confederate battle flag and its status as the emblem of slavery, Marco Rubio is seriously proposing to reinstate a practice that amounted to the same thing, indentured servitude.

What? you say. Surely Nikto has flipped his lid. Nope. Rubio's proposal is exactly like indentured servitude:

Rubio proposed a system in which private investors could pay a student’s tuition in return for a cut of the graduate’s future earnings. In economics circles, the concept is known as “student investment plans,” “human capital contracts,” or "income share agreements."

How very 1984 of them to give them such nice names. "Indentured servitude" is more apt. According to Wikipedia:

Indentured servitude was a labor system whereby young people paid for their passage to the New World by working for an employer for a certain number of years.

Replace passage to the New World with college education and working for an employer with a cut of the graduate's future earnings and you have the 21st century version of serfdom.

Why does Rubio think this is needed? Why, it's those evil college cartels. Somehow Harvard, MIT and UCLA are preventing innovative, low-cost competitors from entering the college marketplace.

Except they're not. We've had a plethora of "innovative" private and Internet-based colleges entering the marketplace in the last 10 years. Most of them are scams, like Corinthian Colleges, which declared bankruptcy last May.

The business model of these for-profit colleges is ripping off government-run college grant and loan programs. They enroll students with low self-esteem they know will never graduate, promise them great jobs at fabulous salaries, give them bogus courses that teach nothing, and then laugh all the way to the bank when the students flunk out. Students that actually complete their coursework rarely find the jobs they were promised.

The evil thing about these indentured servitude contracts is that you'd never be able to get out of them. If you take out a student loan, it's possible (though difficult) to declare bankruptcy if you bottom out. These indentures would be impossible to get out of because they would just take a percentage of whatever you earn:

At an event last year at Miami-Dade University, Rubio went into more detail on how such a student investment plan might work.

A student who needs $10,000 for tuition makes an agreement with a private investment group to pay the lender 4 percent of their income after graduation for 10 years, regardless of whether this is more or less than $10,000, he said.

Now, 4% might not sound like a lot. If you got a job as a computer programmer at $50,000 that would be $2,000 a year. But that would go up every year as you got raises. A programmer with five years experience can easily earn $75,000 in some parts of the country. That would be $3,000.

But how much would you pay if you borrowed $10,000 with a regular college loan? This financial calculator shows you. If you borrowed $10,000 at 4.66% (the federal student loan rate for 2014-2015), you would pay $1253 a year. That will stay the same no matter how much money you make. Even at 8.5% a regular student loan is a far better deal than the man owning a piece of your ass for a decade.

And of course students won't be borrowing just $10,000. For four years you need anywhere from $40,000 to $200,000 or more, depending on where you want to go to school. Does that mean the investor is going to want 16% to 40% of your salary for the next 10 years? Or 10% or 20% for the next 20 years?

Geeze, it's like Rubio wants to let corporations tax private citizens...

Also, the people "investing" in students are going to dictate what your major is -- they're not going to sign contracts with education, art history and English majors: they're going to demand you major in computer science, engineering, pre-med, pre-law, business administration and so on.

Even creepier, Rubio talks about investors owning a "diversified portfolio" of students. Almost certainly there would be a secondary market where these indentures would be bought and sold, sort of like the derivatives contracts that torpedoed the economy in 2008.

And it would result in exactly the same kind of bubble and bust cycle after a President Rubio gutted the federal student loan program, and "entrepreneurs" signed a bunch of sub-par students, sold off their contracts to some sucker like Lehmann Brothers, who would then collapse when these kids could only find work at Walmart.

(Actually, this makes me wonder how much money private colleges are secretly giving to Rubio's Super PAC...)

If this actually caught on, it wouldn't just be investors taking out these contracts. Companies would want to eliminate the middle man: they'd sign promising students directly out of high school like the NBA does. Instead of owing an investor your salary, you'd owe your employer a chunk of your salary. You would be a literal indentured servant.

There's no question that there's a problem with burdensome college debt loads, especially for doctors who have to go to school for so many years. Creating a new class of indentured servants isn't the answer.

Since corporations are the primary consumer of college grads, companies should pay enough in state taxes to ensure that every student with a part-time job can afford to commute to an in-state public college or university. Hospitals, insurance companies and medical firms should pay a special tax to offset tuition at medical schools.