In the New York Times today, Luigi Zingales floated out what most probably consider a terrible idea for financing college education: private investors buying out equity stakes in students’ future income.

Investors could finance students’ education with equity rather than debt. In exchange for their capital, the investors would receive a fraction of a student’s future income — or, even better, a fraction of the increase in her income that derives from college attendance. (This increase can be easily calculated as the difference between the actual income and the average income of high school graduates in the same area.)

This is one of those Newt Gingrich types of ideas that has a tinge of cleverness to it, but is otherwise completely preposterous. This idea should be panned as ridiculous, and it has been. However, there is a teaching moment in this sort of thinking. Unlike traditional financing schemes, which somewhat obscure what financing is about, this idea really puts it right at the forefront: financing involves investors grabbing up the future productivity of others.

Of course all financing does that, whether through debt or any other financial instrument. Investors use their money to claim shares of others’ future production in one form or another. When that is done via loans or stock purchases, the true nature of what is going on is so opaque that nobody seems viscerally bothered by it. However, the student equity idea manages to personalize the financing process in a way that actually triggers disgust and uneasiness. If that reaction can be directed at other kinds of financing, then we might have something big.

The financing stuff aside, I think Zingales has some things correct here, if only he’d drop the creepy private investor component of it. It makes sense to have the group of people who receive college education pay for it, not the general public. Those who go to college make around $1 million more over the course of their lifetimes as it is. Making the relatively poorer set of people who do not go to college pay for those who do seems really backwards. Further, it makes sense that we would want everyone who graduates to only pay a manageable amount back into the college system. Requiring them to pay a set fraction of their income back achieves that.

The best way to achieve these objectives is not through Zingales’ system though. It is through a single-payer system of college financing funded by a surcharge tax on those with college degrees. Under such a system, the federal government would finance education via payments to colleges and universities, and those who attend will have to pay higher income taxes later in life.

This type of system would ensure that 1) college is free at the point of delivery, 2) only those who receive college degrees pay into the college financing system, and 3) the amount individuals are required to pay back will be manageable. This system would be public, instead of private, and would thus get rid of profiteering. If done right, it also could help achieve cost controls in a way that Zingales’ system would have more difficulty doing.