Last weekend, I finished Marco Rubio’s American Dreams: Restoring Economic Opportunity for Everyone. I’m a fan of Senator Rubio; as his proposals prove, he is in favor of promoting opportunity for everyone.
One of his most interesting ideas discussed in the book addresses solutions for the student loan debt problem. When I graduated from law school, it took me nearly three years to find a job. In that time, my student loan debt ballooned to over $83,000. After paying more than 75% of my income for over two years to Sallie Mae – er, now Navient – and her moneygrubbing pals, I still owe more than $56,000. (Even though I can’t get much compound interest from the bank, the loan company should do!)
Anyway, Senator Rubio proposes allowing wealthy individuals or companies to invest in students. These venture capitalists could contractually agree to pay for a student’s education (or a portion of it) and receive X% of the student’s income for Y number of years. For example, let’s say a student wants to get a bachelors degree in mechanical engineering. The student needs an additional $20,000 to pay for expenses. A company like GE could agree to front the $20,000 in exchange for 6% of the student’s income for a period of five years. If the student is like me, and cannot find a job, that’s too bad for GE – it assumed the risk. If the student is very successful and ends up making $200,000 a year, GE makes a ton of money. Nevertheless, the student is still in good shape and got what he needed.
While many, including former Indiana Governor Mitch Daniels, support this plan, critics call it nouveau indentured servitude. And being beholden to Sallie Mae for life is preferable?! Besides, I’m fairly certain our legal system has come a long way since the late 1600s. Even if certain state laws throughout the country to have prohibitions on the assignment of future income, I believe this proposal is worth looking into. Senator Rubio writes that the system has been adopted as an option in both Europe and South America, where it has allowed many low-income students to reach their educational and professional aspirations.
Wheelhelmina's Spin 
My understanding is that interest only compounds on student loans when it isn’t paid off, right? So I would expect that when you’ve been actively paying them off, interest isn’t compounding.
Interest wouldn’t be compounding if it was paid off each month. Interest would still be accruing, though.