Some MBA students are earning their degrees and/or paying them off by financially collaborating with MBA graduates from the same schools. This is a new strategy in higher-education financing, but it sounds like a pretty neat option in certain circumstances. This happens via a new startup called SoFi whose tagline is, where social meets finance.
Erin Zlomek writes about the approach in Bloomberg Businessweek (Let Your Fellow Harvard Grads Pay for That MBA 7/9/127/15/12, p. 26). Zlomek explains the process:
Mike Cagney, who founded SoFi in San Francisco last year, saw a business opportunity in the idea that not all of the record $1 trillion in student debt outstanding is created equal. . . . [SoFi] raises capital from alumni of selective institutions to fund loans for current students or graduates who want to refinanceat rates that beat those offered by the federal government.
The intrinsic strength of the business model is in the statistics of the students. About 99% of all MBA students meticulously pay off their student loans. Therefore, the risk is significantly diminished relative to the broader student-loan population.
So far, SoFi is off to a great start. The company has raised $100 million and is already shuffling lots of loans. SoFi will expand its program into 50 new universities during the 20122013 academic year. Investors who fund the loans are given a 5% return, and that money can be invested in IRAs or 401(k)s.
At the end of the day, would you rather borrow money from an institution or your alumni? And, at the end of the day, would you rather invest in just business ventures or business ventures with a social impact to your alumni? This sounds like a win-win situation to me.
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