The author is Gail Heriot, an academic lawyer who is also on the United States Commission on Civil Rights, appointed by Congress. Strange.
"It is entirely clear that 21st century Americans have no interest in jailing runaway apprentices. A legislative proposal calling for the arrest and detention of individuals in breach of their apprenticeship contracts would rightly be met with jeers and guffaws."
The big reason they don't like the German approach is because it excludes from the trades those who don't have the "appropriate" licenses. This shuts those of little means out of these jobs. They proposed, as possible solutions, vouchers, loans, and possibly permitting non-compete agreements.
Your accusation of "re-introducing slavery, or at least indentured servitude", is deeply dishonest.
That's effectively indentured servitude.
The big difference between union-run apprenticeships and employer-run apprenticeships is that the union represents the employee's interest, not the employer. This results in a much more formal educational arrangement. It's not just "cheap workers with a little training now and then".[1]
[1] http://www.eurofound.europa.eu/observatories/eurwork/article...
Sure, the union-run apprenticeship represents the employee's interest - but only by excluding others from that position. If the only way you can get a license into a trade is to complete a union apprenticeship, then the union is effectively shutting out people from that trade. That's the complaint; not that it's bad for the apprentice, but rather that it's bad for those not permitted to be apprentices.
Student loans aren't indentured servitude because they're not tied to a specific employer. H1-B visas are so tied, but there's the option to quit and go back to one's own country. But the Cato Institute proposal describes being "bound by a contract to work for a particular employer for a fixed period of time" enforced by a debt obligation. That's indentured servitude. Probably illegal in the US.
A system where you take on a debt, and are jailed if you renege it, is very different than a system where you take on a debt, and can discharge it in bankruptcy. That's the crucial difference, and I think the text makes it clear that Cato are not advocating the former.
And I don't see how employment/training is so different from anything else for which you might take out a forfeitable loan. If you're saying that all debts payable to a single creditor are "indenture", then so are mortgages and car loans. The "servitude" part would come about solely as a consequence of it being a loan based on work, rather than anything else.