The student loan market has become a classic blue model example of good intentions gone wrong. In the beginning, subsidized federal loans helped make a college diploma part of the American Dream, but over time the combination of rising tuition costs and some dubious choices regarding course selection have saddled students with increased debt levels and decreased earnings prospects, leading to an ever more dysfunctional system.
This story reminds us that, while some are busying themselves with plugging the holes in this sinking ship, others are trying to re-imagine student loans in a post-blue world. The folks at TechCrunch bring us news of a new company called SoFi:
The company is creating university-specific funds for alumni to invest in, and those are used to make loans to students. SoFi says it’s offering to cover the full cost of attendance for participants, with loans ranging from $5,000 to $200,000. The loans are 6.24 percent fixed rate, and they can drop to 5.99 percent, lower than federal Stafford and PLUS loans and many private loans. So students get relatively low interest rates, while alumni get a significant financial return.
SoFi doesn’t just connect students with alumni money; it also allows alumni to play an active role in mentoring the students they support. Students get guidance to go along with their loan, and the alumni get a chance to help the next generation, as well as play an active role in making sure students are equipped to pay the loans back after they graduate. Meanwhile, Uncle Sam—and taxpayer money—disappear from the equation. Everyone, it seems, wins as smart disintermediation offers both borrowers and lenders better deals than the status quo is able to provide.
Via Meadia has no idea whether SoFi will succeed, though its initial prospects sound bright and we wish it the very best. It doesn’t address core problems like inflated costs and the inefficient way that university education today is organized, but by giving students access to experienced mentors it can help students avoid some of the worst pitfalls of the present system.
Whatever the outcome, this is the sort of innovation and creativity that has, historically, made America great. Big problems require more than just tinkering around the margins. The decline of Blue and the bubble in higher education are big problems; it’s good to see people working on a fix.