Hate Sallie Mae? Peer-to-Peer Lending Makes College Accessible

When I talked to the founders of Vittana (Kushal Chakrabarti), Enzi (Ashni Mohnot), and CO-Fund (Cody Simmons), I started each conversation the same way: “I’m still sending a hefty check to Sallie Mae after ten years and I hate it!” But what if the only option to finance my college education was cash or a loan shark? And I lived in a developing country with a family struggling to pay for food?

A recent study published by UNESCO and the International Institute for Education Planning recommended that "Innovative financing solutions and efficiency gains are required to improve affordable access to post‐primary levels." These folks are working on testing some models for innovation.

Vittana’s model is based on peer-peer, no-interest, individual loans, that are pooled together to fund individual students. The system makes it easy for anyone (even someone like me with outstanding loans) to pitch in as little as $25 to help send a student to college in a developing country. The lending/repayment process is simple: find a student you want to support by reading through their profiles, make a loan that is combined with other individual lenders, and wait 6-12 months while the student completes their education. Within 6-18 months after graduation, the student repays Vittana and then Vittana repays the individual lenders the same amount they loaned. So far, they have a 97% repayment rate.

Enzi (a 2010 Echoing Green Fellow) operates on the same principles of funding students in developing countries but the method is different; it is “equity-based education funding.” The loan an individual investor makes has no fixed amount of return on the investment; it’s based on the graduate’s income, with a maximum cap, for a fixed period of time. This model is not a loan, but an investment in human talent. Rather than investing in one student, Angel Investors have a group of students, in a similar way you might invest in several stocks rather than putting all your money in one company to mitigate your financial risk.

While Vittana and Enzi are currently focused on funding students in or from developing countries in Masters Programs, CO-Fund’s students are undergraduate students in in the US. It’s also unique in that it’s an organization for students by students. Like Vittana and Enzi, CO-Fund seeks individuals to fund student loans but the repayment model is different. Students who receive loans commit, through a “pay-it-forward pledge” to one of four options: 1) Work for CO-Fund or one of their partners for a year; 2) Donate one fifth of their loan amount to another student in the CO-Fund program; 3) Complete 100 hours of community service; or 4) Complete a graduate program.

I’m really interested in tracking the successes and challenges Kushal, Ashni, and Cody face as they pioneer  innovative solutions to students in need. The next time I make my Sallie Mae payment, I might even adopt the CO-Fund spirit and pitch in a few extra dollars to pay it forward to a student in need. How about you? I'll even make it simple:

• Find a student and make a loan through Vittana
• Become and Angel Investor with Enzi
• Find and fund a CO-Fund Fellow

Photo Credit: m00by