This article was taken from the July 2014 issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by <span class="s1">subscribing online.
As president of Google Enterprise, Dave Girouard saw a generation of would-be entrepreneurs and innovators being held back by student debt and limited credit. He left Google in 2012 to tackle the problem by launching Upstart, an online marketplace that connects graduates with investors willing to give them cash in return for a percentage of their future earnings. Known as a "human capital contract", the arrangement provides more flexibility than a traditional loan: how much you pay back depends on how much you earn. It's also becoming a bit of a trend.
Upstart uses a model to predict the income of "upstarts" over ten years. That generates a funding rate: the amount an upstart can raise for every one per cent of income committed to be paid back over five to ten years. Upstart aims to deliver an eight to ten per cent return for investors.
Like Upstart, New York-based Pave relies on a model -- based on education, test scores, credit history and job offers -- to estimate earning power. Each applicant ("prospect") is allowed to share up to ten per cent of future income. Backers are told to expect a seven per cent return.
San Francisco-based SoFi lets alumni of more than 100 US universities invest in a fund that helps students and graduates of the same college to refinance existing student loans. Roughly 80 per cent of the fund for each institution comes from banks and venture capital.
Lumni was founded in 2001 to finance higher education for low-income students in Latin America. Now operating in the US as well, it runs investment funds that give students money upfront in exchange for a percentage of their salary after graduation.
lumniusa.net
Career ConceptSince 2002 Munich-based Career Concept has been managing investment funds that put students through university in Germany.
Candidates undergo an application process to qualify and set the percentage of future income they pay back.
This article was originally published by WIRED UK
