Platforms for investing in students brings crowdfunding to campus
Crowdfunding has graduated; now it’s investing in students. The heads of student investing platforms Upstart, Social Finance, and 13th Avenue Funding underscored the importance of community during Monday’s “Investing in Students” panel at Global Conference.
Social Finance, the investing platform founded by CEO Mike Cagney, connects alumni with students and delivers job support. Meanwhile, Upstart, founded by CEO Dave Girouard, and 13th Avenue Funding, whose CEO is Robert Whelan, make equity investments in students in return for a portion of the student’s income after graduation. The platforms pool contracts into a cohort so that “all students get the sense that they’re in it together,” Whelan said. This acts as an incentive for students not to default and let down their community, Cagney added.
The panel, moderated by Sean Greene, formerly of the U.S. Small Business Administration, also touched on the growing student debt burden, which now totals more than $1 trillion. David Bergeron, vice president of postsecondary education policy at the Center for American Progress, provided two slides that highlighted the explosive growth in the cost of graduate and professional degrees in the past four years. Cagney also pointed out that student debt is capped at the undergraduate level, but at the graduate level no such cap exists.
All panelists were highly critical of institutions of higher learning that don’t ensure a transparent financial aid process, and all agreed that institutions should have some skin in the game rather than shifting the debt burden to the student and the federal government.
Panelists favored institutions having to provide information on the expected future earnings of each major to prevent students from taking on long-term debt with little ability to pay. Former U.S. Secretary of Education William Bennett and Whelan supported federal legislation to that effect: S. 2098 introduced by Sens. Ron Wyden (D-Ore.) and Marco Rubio (R-Fla.), and H.R. 4436 introduced by Rep. Tom Petri (R-Wis.).
Cagney and Girouard noted that their platforms aren’t completely dependent on retail investors; they also generate institutional investor interest. Cagney said 20 percent of his platform’s capital is alumni-generated while 80 percent is institutional, and Girouard said roughly two-thirds of Upstart’s capital is from institutional investors and one-third from retail investors. Both noted the importance of institutional investment in generating liquidity in this market.
Panelists also discussed the potential drawbacks to their innovative funding platforms, including opposition from higher education institutions and the reluctance of alumni and potential investors to being seen as profiting off the student body. When asked whether panelists were concerned that such financing is equivalent to indentured servitude, Girouard remarked that little love has been shown to lenders over the past 5,000 years, and “paying back as you earn is liberating.”