Human Capital Contracts: An Innovative Instrument for Financing Higher Education
This research examines the financial investment required in order to acquire higher education and proposes a solution for its financing, known as Human Capital Contracts (HCC). A human capital contract enables students to receive the money necessary to finance their education in return for a commitment to return a predetermined percentage of their future, post-graduation earnings, during a predetermined period.
Such a scheme is welcome for tertiary education students in both subsidized institutions as well as the nine un-subsidized, private institutions currently operating in Israel. For instance, a student requiring 10,000 NIS annually during his/her four years of study will pay back 4% of his/her future earnings for a period of ten years, beginning one year after graduation. The cash flow resulting from such a scenario is presented in the following diagram.