When are business schools really going to make education their business?

Sir looking at the high tuition fees of many business schools one wonders if they are not setting themselves up to be sued by their graduates for failure in delivering what they promised as indeed the current incentive structure seems a bit misaligned with students investing their futures and paying for it and schools only collecting present values.

Lately there has been some talking about Income Contingent Loans as a way out for the students that get trapped between high education debts and unrealized earning hopes. The problem with these ICL is that they are mostly based on some government subsidies while it might be time for schools to really make education their business and share the risks by investing part of their fees in participations of their students’ future earnings.

Business schools might argue that they need all their money now to pay for their huge costs but, honestly, if they cannot manage to securitize those participation contracts and sell them to the financial markets when everything else seems to become securitized then they should perhaps not be allowed to call themselves business schools either.

The first who to our knowledge broadly advanced this idea was Milton Friedman in 1955 and lately Miguel Palacios of the University of California has also been writing extensively about what is called Human Capital Contracts. Their splendid ideas have yet not taken hold much, perhaps because the education providers themselves have lacked the incentives, but this might change rapidly, after the first suit.