NEW YORK ( MainStreet) --If you graduated at any point in the last fifteen years or so, it's a pretty good bet that you took out some fairly hefty student loans to pay for that degree. After all, there are over 37 million student loan borrowers in the U.S. and their average individual debt load hovers around $24 000. But what if it wasn't Sallie Mae holding the note for your education and demanding monthly payments, but a well-off private citizen who wanted to invest in your career potential and expected to be repaid from your future earnings? It may sound crazy, but two startups are seeking to put a Renaissance-era spin on educational funding by reviving the patronage model. Pave, founded Sal Lahoud and Oren Bass, launched in December 2012. The site allows pre-screened young prospects - new grads or those soon to graduate - to post campaigns seeking funds for their education or career ventures. Backers can donate to these campaigns and are repaid with a percentage of the prospect's income over the next ten years. Also see: The Rise of the 529: How to Afford College "The idea came to me when a friend asked to borrow some money to pursue his passion," Lahoud said. "I wanted to help, but I didn't want to find myself in the awkward position of having to ask for repayment should things not work out with his projects." Lahoud wondered if, instead, this could be something more like a revenue share. "I would provide the funding needed, and if he did well, I suggested we share in that success," Lahoud said. "Conversely, during times of hardship, he would not be responsible for sharing earnings. Thinking historically, didn't patronage used to work in the arts and sciences in a similar fashion?" Upstart, founded by a group of former Google employees, has a similar mission and financial backing from such heavy hitters as Mark Cuban. Founder Paul Gu says that a desire to prevent promising grads from making career decisions on the basis of money alone was what motivated his team to launch their platform.
"Students today are graduating with record levels of debt from college and graduate school," Gu said. "Young people without debt, unless they come from family wealth, typically don't have a lot of money. The result is that they often make life choices based on their short-term financial constraints, rather than their long-term career success or happiness." That trend doesn't sit well with Gu. Also see: Does College Add Up? Try This Forumla "We all personally knew so many graduates choosing a 'safe' career path, skimping on education, or passing up valuable experiences because they didn't have $20 000 of capital or financial security," Gu said. "We thought people should be able to pull their income potential from the future to finance investments in themselves today." Upstart participants share up to 7% of their income over 10 years post-funding, and Pave participants share up to 10%. Both platforms encourage funders to provide mentorship in addition to cash to those whose campaigns they back. Lawrence Cann was fortunate enough to fund his undergraduate degree through sports and academic scholarships, but what he calls the "outrageous" interest rates on private and federal loans was part of drew him to Pave's platform. Cann received $40,000 to pay off the cost of his recent Columbia MBA, which will allow him to focus his efforts fully on growing his not-for-profit venture, Street Soccer USA. "I plan on being successful and I want my backers to enjoy that success when it comes," he said. "Without Pave, life would be a lot more challenging financially and I'd be less free." One of Cann's backers was Joel Seligstein who was attracted to the idea of being a benefactor by both a desire to pay forward some of the support he received during his own college days and an affinity for Cann's sports-focused career plans. "Combining sports, entrepreneurship and social movement is really an amazing package that sounds exciting," Seligstein said. "While reading about Lawrence and Soccer Street USA, I found myself passionate about his cause and wanted to be involved." Currently, Pave has eight teams active on its site, and Upstart boasts over two dozen participants with active campaigns. Gu says grads have been signing up "in droves" despite the fact that company has done little in the way of formal marketing to date.
But how scalable is the patronage model when it comes to supporting the creative endeavors of high-potential grads and defraying the cost of college education? According to Gu, it's less about supplanting the student loan system and more about investing in our human resources - literally. "We believe that 'human capital' has the potential to be the mother of all asset classes," Gu said. "The entire productive output of the economy flows to individuals as income, and by securitizing that income, we're creating what could become the largest asset class ever." Also see: Student Debt Diary: 5 Things I Wish I'd Known Before Borrowing