A student finance solution: human development funds

Trinity College, Cambridge. (Glorious) photograph provided under Creative commons licence (2.0): (c) Andrew Dunn (http://www.andrewdunnphoto.com/)

Financing higher education (HE) can be difficult. HE can provide students with a number of benefits, one of which may be enhanced earnings potential. But even where this is the case, the earnings follow later while the institutions demand payment upfront.

In England, where bursaries play only a minor role, students have two main options: (a) finance themselves from their own (or their families’) savings; or (b) apply to the state to pay their fees on their behalf and then, after they have graduated (and subject to various conditions), repay their debt to the state.

Since most students don’t have access to the capital required for option (a), in practice most students follow (b). This arrangement has aroused opposition because of the prospect that graduates may face decades of indebtedness.

The purpose of this post is to propose another option. But, first, I’d like to emphasise that the article in the main title of this post is an indefinite one: my purpose is to propose not the solution, but merely one to put into the mix. It’s designed to extend the choices available to students.


The proposal is for human development funds (HDF) to play a part, as follows. A student may apply for funding from an HDF. Where the student and an HDF agree, the HDF will pay the student’s HE costs (or an agreed proportion of them). Note that under this arrangement, the HDF pays the sum outright: it does not lend it, nor does the student incur any debt.

In return, the student agrees in future to pay the HDF a royalty, expressed as a percentage of that person’s earnings over a specified term. Note that the student is not committed to pay any specific sum: if she or he never earns a penny, the HDF receives zero royalty payments and thus makes a loss.


I have broached this idea, which in essence is not novel (to the best of my knowledge, it dates back to the 18th century), to several people and have received a variety of responses. They include two criticisms and two constructive suggestions.

The criticisms first. Some people have suggested that it would be difficult to attract investors for HDFs, given that the investments would be very long-term and clearly entail risk. My response to this is:

(a) we already have long-term financial arrangements – for example, life insurance and mortgages;

(b) there’s no reason there shouldn’t be a secondary market for such investments (as there is, for example, on long-dated government bonds);

(c) we live in an age of financial innovation. We don’t always recognise it as such, because the larger, most visible, financial institutions, namely the clearing banks, are too sclerotic to participate (evidently they prefer to fix inter-bank lending rates or mis-sell protection policies), but away from the centre stage there’s plenty of energy.*

The second criticism has been that the royalty condition amounts to ‘slavery’. I put the word in inverted commas, both to indicate that it is the word my interlocutors used and to distance myself from it.

My response to this objection is simple: it indicates a lamentable ignorance of what slavery is. (1) Working, for example, in a chain gang, picking cotton in a Louisiana field, prone to being bought and sold at a master’s whim, and (2) opting as a consenting adult to enter into an agreement with an investment fund as an alternative to other options available, an agreement that supports voluntary participation in higher education – these things have precisely nothing in common.

Now for the constructive suggestions. First, the UK used to have a vibrant sector of mutual financial institutions. The culture that produced dissenting churches and trade unions also produced friendly societies, building societies, and co-operatives.

This sector currently is a shadow of its former self, in part because of substitution by the welfare state. HDFs might provide an opportunity to recover ground.

As a glance at the Association of Friendly Society’s directory shows, today’s societies still bear such names as ‘Shepherds’, ‘Foresters’, ‘Railway Enginemen’s’, and ‘Hunt Servants’: one can envisage in future HDF-centred societies called, say, “Engineers” or “Heriot-Watt alumni”.**

The latter leads to the second constructive suggestion, namely that universities themselves may invest in HDFs. These investments provide an alternative to bursaries: because there is a return in the form of royalty, more students may be assisted than by a system of bursaries alone.

*See (or, rather, listen to) the podcast from the 14 February 2013 of Evan Davis’s BBC programme, The Bottom Line.

** Or even “Publishers” (though that would be a rather modest fund).


2 Responses to “A student finance solution: human development funds”

  1. Definitely deserves deeper and official investigation … Also:

    1. Presumably these could have some taxation benefits for investors, on the model of Venture Capital Trusts?
    2. The BMD (Bank of Mum and Dad) have been running a similar scheme for many years, although precedents suggest ROI has been very variable, even non-existent …
    3. It may be difficult to make these fair – students may be financially naive, like the people who get high-street loan sharks to advance them money against their salaries and find they are paying 4000+ APR. What is the likely cost of a regulatory mechanism to give this scheme credibility for fairness?

  2. A very interesting idea. I’ve seen a graphic going around on Facebook that says something to the effect of “I don’t mind paying taxes for education because I don’t want to live in a nation of stupid people”. One could extend that to higher education as well — the benefits to society at large are tangible despite the longer term. My main concern would be the natural tendency for people to not voluntarily give away their earnings. It’s hard enough to get people to pay their taxes for which they are obligated legally. In this scheme, it seems the royalty payments are somewhat voluntary — unless there were a mechanism to monitor the graduates’ incomes and the right to impose liens against them if necessary.

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