I heard the economist article on crowdfunding students this week and was inspired to write this post.
While government owned public colleges are still relatively cheap, education in India is getting really expensive. When I graduated in 2000, I paid INR 32000/year, which was USD 7,20/year for my engineering education. A similar private collage today costs around INR 500,000/year, which is around USD 8,800/year.
This is expensive and out of reach of most middle income Indian families. Medical colleges are even more expensive. Add to this the “capitation fee” or the backdoor admission “fees” and suddenly an average student in India, born to an middle income family earning INR 120,000/year (USD 2100) cannot pursue a professional course in India. Capitation fees or backdoor admission fees are normally paid in cash can be as high as USD 30,000 for good private colleges.
Compare this to in-state tuition in US universities and you may find that it a fair comparison.
All the companies mentioned in the article, Upstart and Pave seem to have the same idea. Get well paid and well connected individuals to fund education for upstarts/students. Since these individuals are personally invested in the career of the student, they help introduce this individual to promising opportunities. Its funny how a selfish interest is driving socially desirable goals.
Lumni seems more focussed on getting social welfare funds’ money instead of individuals’ or maybe they create a fund from money raised form individuals.
Cost of capital
Not sure how this works but students pay back 7-10% of their yearly income for the next 10 years to investors. Say you make 60,000 out of college and can get a 4% raise every year. Then this amounts to a payment of between $50,000-$72,000 over a 10 year period. I’m sure that a 3-4 year undergraduate course in the US will cost more that $100,000. So…really the play is if you, as an investor, can help make your “upstart” more successful than the cohort, then you can get a much better return on your money.. say around 7% or more.
So.. if you, as a student, expect to be successful irrespective of help from the individual investor, it might be cheaper for you to get money from the bank since the interest rates are so low in the US. Interesting conundrum as perhaps you may make even more money because of the guidance from the investor…
Use this calculator to see which loan turns out to be cheaper for you in the long run: