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Financial-Aid Plan Tied to Students' Future Earnings

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A New York City-based firm is touting a new way for college and university students--and stock-market speculators--to look at financial aid.

The Human Capital Equity Contract, as proposed by Human Capital Resources Inc., would allow students to "sell" some of their future income to investors for a stipulated period of time. The contracts would then be aggregated in a Human Capital Mutual Fund and sold on financial markets.

"We will be investing in success rather than simply providing access," Roy C. Chapman, the chairman of Human Capital Resources, told forum participants at the Cato Institute, a Washington-based think tank, last week.

Mr. Chapman said his group's proposal differed from current financial-aid options in that it could provide up to the entire amount of aid needed. What's more, he added, the contracts could offer a funding alternative that required no government subsidies or guarantees.

Because the rate of return to investors will depend on graduates' economic viability, Mr. Chapman said, the market would provide incentives to both students who study hard and pursue majors relevant to society's needs and institutions that graduate economically successful students.

Creative Financing

The program would put a cap on the total amount a student would have to pay back in any given year.

It would also reduce the amount payable for students who earned significantly less than their college peers.

By tracking the progress of students participating in the mutual fund in a quarterly prospectus, called a "Capitalistic Report Card," investors could "begin to quantify the value of education received" at a particular college or university, according to the group.

After reading the group's proposal, Barmak Nassirian, a policy analyst for the American Association of State Colleges and Universities, found the plan vague on many specifics.

He added that he was "extremely skeptical" about whether the proposal would yield a workable plan that students would find beneficial.

Human Capital Resources Inc. has prepared draft legislation to secure the necessary approval and protection for human-capital equity contracts. The group has floated the plan and is currently looking for a congressional sponsor, Mr. Chapman said.

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