Milton Friedman and the finance of higher education

Friedman and Kuznets (1945) posed the puzzle that the return to investment in human capital was higher than to physical capital. They hypothesised a distortion causing under-investment in human capital and made brief mention of the idea that individuals might sell ‘shares’ in their future income to finance their investment in human capital. Friedman (1955) explored the idea in more detail, setting out the first worked out proposal for income-contingent repayments. After discussion of today’s context, successive sections of this chapter discuss the nature of Friedman’s idea, assess its impact on policy, and set out a view to the future, including future design options and potential theoretical work.