In the US, you can't issue shares for sole proprietorships (meaning you yourself are the business). Any entity whose ownership needs to be sold to multiple people will need to be a partnership or corporation.
Let's pretend there's a student named Bob. Your company must create a corporation for Bob and then sell shares in it to investors. There would also have to be a contract between Bob and the corporation saying that Bob will pay x% of his future salary to the corporation for y years.
Now let's say Bob doesn't want to continuing paying the investors. He can work as an independent contractor, which would make it nearly impossible to figure out how much he's earning. He can also just refuse to cooperate.
This would inevitably end up in court. A judge would decide if the original contract, where Bob agreed to pay the corporation x%, was enforceable. It's possible the judge wouldn't agree.
But let's say the judge agrees it's enforceable. All Bob has to do is declare bankruptcy, and any damages awarded by the judge go away. That leaves the corporation (and your investor clients) with huge legal bills, at least in the tens of thousands of dollars.
Even if that scenario only plays out 1% of the time, you still have to adjust your interest rates to compensate for the risk. At that point, your interest rates have now become higher than a regular student loan, which a reputable person can get for under 8%.
Furthermore, once people have graduated, they can refinance their student loans for much more reasonable deals, which means that even your stated 5% rate would be higher than what they could potentially get on the open market as a gainfully employed adult.
If you then consider the huge percentage of college students who fail to get a good job (or any job at all), plus the ones who die or become disabled, your investors just can't feel confident enough to accept a low interest rate like 5%.
In the US, Congress passed a law saying that student-loan debt is not forgivable. That means that even if a student goes bankrupt, s/he can't get out of paying back the student loans. That means that, even with a guarantee of payment and the goodwill of the federal government, a student loan is only worthwhile at more than 6%.
So basically I don't think this concept works from legal, financial, or economic standpoints. It also smells a bit too much like indentured servitude, which the public would frown on anyway.
the main reason for choosing china is because university is much cheaper there relative to incomes. the key equation is
Lp = xu
where L=lifetime income y=number of years working u= total cost of university, x = return to investor e.g. x=4 means you invest $1 and you get $4 (compound interest therefore over the assumed 35 years is x^(1/35)) p = contracted percentage of income... y = number of years
you can re-arrange this to
dividing both sides by y you can re-arrange to find the ratio of annual income (l=L/y) to total cost of tuition fees.
l/u = x/(yp)
what you find is that even for a relatively modest return, let's say x=8 (i.e. a 35 year compound interest rate of 6.1%), if p=0.02, y=35 u need average annual income l to be a whopping 11.4x the cost of university, which is u is assumed at a modest $20,000 then income needs to be $200,000+...
this makes us feel like it's not possible in the developed world, univeristy is just too expensive, however the best universities in the developing world are very cheap (by western standards). e.g. the best university in china (arguably) is tsinghua university where a four year education costs just $3,000/4,000 (tuition and accomodation)... we think that given we are hand-picking the brightest students in china in subjects that we think will be lucrative, plus the fact that over 35 years you have a lot of economic growth to help you out it's not unreasonable to assume average lifetime income could be at a $40,000+ order of magnitude...
in terms of the 'shares' issue, i don't think that would work for all the reasons you raise... really you would probably need to actually have it treated as a completely new asset class... three potenial examples of how it could work are a) taxation because an individual is liable to pay their taxes and these are often a percentage of income rather than a flat fee and b) a form of security e.g. think about how abs contracts were built on the income streams from mortgage payments c) mortgages themselves, there the income stream is securitized by the underlying asset the house - in our case the secruity would be the income stream itself.
i think the refinancing poitn is very interesting to consider, we actually thought we might start off (to get proof of immediate returns) by actually offering students with loan debt who have already graduated a chance to convert that into our 'human capital' the thought process being is that loan debt punishes you for not paying a lot immediately (as the interest builds up), whereas our contract because it's over a working lifetime's income stream means you can basically trade future consumption (when your income is much higher) for current consumption.
our main observation is that in the developing world there are a lot of people who are credit-constrained when it comes to going to university. we think this doesn't make sense and so we hope to change that.
to be clear btw, our 5% rate is % of income, not % of interest on debt... plus we think 2% can work in china (for the reasons given above).
