The Student Stock Market

Why wouldn’t you invest in Van Wilder? He throws a great party!

I’m thinking this is a win-win proposition: Why can’t we invest in individuals in the same way we invest in companies in the stock market?

I’ve been toying with this idea for a few days now, and a comment on yesterday’s blog post made me want to write about it today. The comment mentioned a scholarship program (link broken) in which you “invest” in talented young people so that they can afford to go to college, and many of them end up being donors to the program after they’ve achieved success.

I think that can be taken a step further, beyond mere philanthropy. This is a very rudimentary version of how I see this happening:

From an investor’s standpoint, you would have access to a vast portfolio of high school seniors in whom you could invest (the students have opted into the investment portfolio). Most of the data about the students is quantifiable: GPA, standardized test scores, extracurriculars, etc. Students could also submit 2-minute pitch videos and/or essays.

The government has a formula for determining student aid, and from that formula you’d derive how much money each student would need depending on the school they attend. So say John Parker has selected Stanford as his university of choice, but he needs $20,000 a year to attend. If you like John’s potential, you could invest all or part of that money, and John could avoid taking on federal or private loans.

For four years, you wouldn’t reap any dividends from your investment beyond good feelings. But then he graduates and gets a job (sure, he might go to grad school too–there would have to be stipulations about that). Out of every paycheck he receives, you get a cut based on the amount of money you originally invested in him. It’s risky for you, because John could go downhill in college and never make a decent wage, but there’s also the chance that he’ll get a great job or start a huge company, and you’ll reap the dividends of your investment.

How long would you reap those dividends? I’d say quite a while, especially since it’s only good for the benefactor if you make a return on your investment.

You might be wondering, why doesn’t the student just take a loan, even a private loan? Because it’s much less risky for them. If they take an $80,000 loan with 6% interest after college, no matter what job they get, they have to pay off $80,000 (plus 6%). Which the investment option, the amount that they pay depends on the amount that they make. They may end up paying less than $80,000 or they might pay significantly more. But the latter only happens if they’re making big bucks.

I truly think this would be good for everyone. Wouldn’t it be great for individual students, especially poorer ones, to know that someone out there believed in them enough to invest in them. And wouldn’t it be neat for regular guys and gals like you and me to be able to invest in our future, even if we’re just chipping in $500 or so?

What do you think? Have you heard of anything like this?