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have to be sufficiently high to compensate for the capital losses on the defaulted loans. The high nominal interest rate would both conflict with usury laws and make the loans unattractive to borrowers9 The device adopted to meet the corresponding problem for other risky investments is equity investment plus limited liability on the part of the shareholders. The counterpart for education would be to "buy" a share in an individual's earning prospects; to advance him the funds needed to finance his training on condition that he agree to pay the lender a specified fraction of his future earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which would compensate for the failure to recoup his original investment from the unsuccessful.
There seems no legal obstacle to private contracts of this kind, even though they are economically equivalent to the purchase of a share in an individual's earning capacity and thus to partial slavery. One reason why such contracts have not become common, despite their potential profitability to both lender and borrower, is presumably the high costs of administering them, given the freedom of individuals to move from one place to another, the need for getting accurate income statements, and the long period over which the contracts would run. These costs would presumably be particularly high for investment on a small scale with a wide geographical spread of the individuals financed. Such costs may well be the primary reason that this type of investment has never developed under private auspices.
It seems highly likely, however, that a major role has also
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9 Despite these obstacles to fixed money loans, I am told that they have been a very common means of financing education in Sweden, where they have apparently been available at moderate rates of interest. Presumably a proximate explanation is a smaller dispersion of income among university graduates than in the United States. But this is no ultimate explanation and may not be the only or major reason for the difference in practice. Further study of Swedish and similar experience is highly desirable to test whether the reasons given above are adequate to explain the absence in the United States and other countries of a highly developed market in loans to finance vocational education, or whether there may not be other obstacles that could be removed more easily.
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In recent years, there has been an encouraging development in the U.S. of private loans to college students. The main development has been stimulated by United Student Aid Funds, a non-profit institution which underwrites loans made by individual banks.

 
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