This is one of those ideas that seem obvious after somebody else thinks of it.
The somebody in this case is Felipe Vergara, a Miami entrepreneur with a Wharton MBA and experience as a McKinsey & Company consultant, who was in town last night to speak at a forum on social entrepreneurism.
His idea? Help poor students get college educations, not by lending money with a set payback date and interest rate, but by providing money and then claiming a percentage of the student’s later income for a set number of years. A typical deal might provide, say, $30,000 to a student and then require 8 percent of income for 10 years.
“It’s not a student loan; it’s an investment in human capital,” he says.
If the student gets a good-paying job after college, Vergara’s company gets a good return on its investment. If the student gets a lower-paying job, he earns less.
Vergara’s for-profit operation, Lumni, has been in business for about eight years and he says he’s helped some 2,200 students in four countries — the United States, Mexico, Chile and Vergara’s native Colombia. One hundred fifty of those have finished college, gone to work and completed paying off the investment. Another 500 are out of school and currently paying Lumni.
In all, he’s attracted about $17 million in investments, including some from those 150 students who have paid off what they owed, and has grand hopes of someday helping a million college students.
Vergara was talking about his achievements at a Minneapolis forum sponsored by Ashoka, a global organization interested in fostering social change, and InCommons, a Minnesota initiative being established by the Bush Foundation. (MPR News is an InCommons partner.) Ashoka named Vergara a fellow several years ago and provided a key chunk of money to help his enterprise achieve scale.
The larger point of the forum was that social entrepreneurism — the effort to change society for the better, either via non-profit or for-profit means — needs to look for ways to scale the search for money, talent and markets.
Vergara said as far as he knows, his company is the only one in the United States operating on his principles. Of course, his idea isn’t as simple as it might sound.
Lumni won’t pay for an entire education, and it scrutinizes both the student and the college he or she wants to go to in an effort ensure payback. And it might, for example, adjust the percentage of income required depending on the field the student is going into. An English major might have to agree to pay a higher percentage of income than a prospective engineer.
And if the whole thing strikes you as a version of indentured servitude, Vergara points to the statistics that show low-income high school graduates make substantially less money in their lifetimes than comparable individuals that go on to finish college.
“Lenders want collateral,” he says. “Why not become a partner with the student?” he asks, pointing out that Lumni provides coaching and support to help students stay in school and to find jobs later.