College Students Have a New Way to Fund Their Future

For students who need financial help to attend college, there is now a viable alternative to student loans.

A new company called Upstart provides a platform for backers to invest in college students and then earn a return of their future income. The model is similar to Kickstarter, which allows multiple backers to get behind a single product. As college tuitions continue to rise and state funding declines, students will need to explore alternative ways to pay for education. Upstart marks the convergence of the social web with a changing economy. Many of the funded Upstart students have their minds set on leveraging the web and the influx of mobile devices to create the businesses of the future.

A recent article in Time magazine explains why this new model could catch on:

“Universities are really well set up to help students go down the traditional path—it almost happens by default,” [says Google’s former head of enterprise Dave Girouard]. “That struck me as a misallocation of capital in a sense because for what amounts to a relatively low amount of money—$20,000 to 30,000 in debt—kids are making decisions that are probably going to change the entire course of their careers because often when you get onto the treadmill of the corporate job path, you never get off.”

Upstart encourages students to go their own way. This is how it works: Beginning in the spring of their junior year, college students or recent grads—anyone from a poet who wants to start a literary magazine to a business major looking to build a boutique hotel in Brazil—can apply to be an “upstart”. The applicant is screened to make sure they are who they say they are and the company predicts how much money they will make over the next decade. That information becomes their funding rate, which helps determine how much they can borrow and how much they will need to repay. On average, for every $6,000 a student wants to borrow, they must pay back 1% of their income.

Read Selling Their Futures: College Grads Promise a Slice of Their Future Income for Cash Now on Time.

The Upstart model relies on higher education to prepare students for the working world. Most startups in the education space today are set to disrupt the way education is delivered, positioning Upstart in a unique and potentially influential place. Learn more about how Upstart works.