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Alumni Investments Possible Solution to Student Debt
Finance / Investing Author: Elisheva Wiriaatmadja
Alumni Investments Possible Solution to Student Debt

A quick look at the nation's current student debt situation is all it takes to understand the deep-rooted problem that students today face.  Total student loan debt today exceeds $1 trillion, over 14 times the debt level 15 years ago.  To give that number some perspective (as if $1 trillion needed any), the nation's credit card debt is not quite $800 million.  In a word, it's staggering.

The average student, according to the Project on Student Loan Debt, graduates with more than $25,000 in student loan debt.  That's enough to buy a brand new economy sedan in most places.  And to make matters worse, the U.S. Department of Education reported that roughly 9 percent of student loan holders defaulted on their loans.

But a new loan initiative launched last year at Stanford University by alumni could be changing the face of the student loan debt game.  SoFi, a company founded by Standford alumni, is reaching out to other alumni for investments aimed to fund student loans, in much the same way that other peer-to-peer microfinance organizations such as Kickstarter have done in the commercial market.

SoFi CEO Mike Cagney told the Huffington Post that the student loan market is currently "unsustainable," explaining further by saying, "You've got the government, the school, the students, and nobody is invested in another's success If you take the government out of the equation and introduce alumni, you create those connections and that investment."

Which is exactly what SoFi is seeking to do.  Last year, through alumni investor donations, a hundred students borrowed $2 million from SoFi.  One student, Ben Kessler, in his second year of the prestigious and expensive MBA program at Stanford's graduate school of business (2 years costs $108,000), borrowed $35,000 from the SoFi network.

As Kessler is finding out, though, the SoFi loan is aimed at establishing connections between borrowers and investors, all of whom are alumni acting as mentors for borrowers, giving valuable advice and providing networking opportunities that surpass internships at many schools.

Deals like this are almost always too good to be true, but so far SoFi is proving to be a very promising organization, both for students, and for the student loan debt crisis.

Kessler says that the interest rate of his SoFi loan is comparable to other loans he has taken out from established banks.  The 6.24 percent interest on the SoFi loan is fairly standard for a student loan rate, and also comes with the value-added network of alumni who want to see the students succeed, both for the students' benefit, as well as their own gain.


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Our Funding Fathers: Alumni Investments Possible Solution to Student Debt Crisis
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