ISAs, Stride Funding (formerly AlmaPact), and a Better Future
Stride Funding (formerly AlmaPact) is a team made entirely of students, and as students we’ve been trained to question, study, and ultimately change the status quo of our country. With 1st hand experience of modern student burdens, we figured it was time somebody stepped up to tackle them by asking the same questions that are asked in class… What is the problem? What is causing the problem? And, how can we change these underlying factors? Viewed from within this simple framework, the Stride Funding mission is at its most exciting.
You don’t have to be a student to know the glaringly obvious reality of our world: we are amidst a student debt crisis. Since 2003, there has been a 6-fold increase in student debt, increasing median debt by $10,000 per borrowing household. The real problem, however, lies in the fact that these debts are so frequently unable to be repaid. Student loan default rates are at about 11.5%, but if we also account for forbearance and deferment (earlier stages of repayment difficulties) the federal rate becomes 42% and it is rising fast. The result: millions of people are burdened by debt they often can’t repay.
Although often implied, this is not just a problem in and of itself, but rather has ripple effects across our entire society. Quite simply, education (particularly higher education) has been the key to economic mobility in America, which, in turn, has helped strengthen the American middle class. Recent research by Raj Chetty’s Opportunity Insights team has proven that rates of absolute social mobility (defined by children earning more disposable income than their parents) have declined from 90% to 50% over a 40-year span, and, unsurprisingly, American inequality is significantly higher than anywhere else in the world (with the top 1% holding more than 45% of GDP). Indeed, there is at least a correlation between these widespread issues and the lack of financially accessible education. Finally, it is important to mention that minorities are significantly more likely to have both larger debts and greater default rates, and thus the effects of our distressed American education system even extend to American social issues.
So, we must at least try to ask ourselves: why? What is so different in our society today that has caused such huge student burdens? Of course, there are many answers, but I think it is easiest to target the most obvious causes.
Lowered value of education
In other words, the price of college has been rising much more than the benefit has. Indeed, the price of college are more than two and a half times as much as it was in 1988, accounting for inflation! While the benefits of college are much harder to measure, most would agree that these new financial burdens create an unmatched burden on its overall value.
Lack of Accountability
There are millions of ways students measure various universities against each other. However, very rarely are students thinking about the specific statistics of a school’s value, like, average cohort default rates for example. While a pretty campus may of course be important, many schools have student default rates higher than 30% for students just 3 years post graduation and yet they still go unnoticed and unpunished.
Lack of Resources
A new study has shown that at least 85% of jobs are filled through networking, and unfortunately many of the low-income students in America lack access to a strong network. Quite simply, public schools, which are usually more affordable, typically cannot offer the same kinds of connections and have lower median incomes post-graduation.
Lack of Post-Graduation Flexibility
One of the most interesting findings is that these default rates are concentrated in years directly after college; of borrowers who started repaying in 2012, just over 10% had defaulted just 3 years later. And, it is not that difficult to understand why, since jobs directly after graduation are usually the lowest paying (as one continues through their career they usually experience some kind of increase their salary). Given that there is no such incremental increase in loan payments, this means that students are dedicating the highest percentage of their income to loan repayment while they are earning the least amount of money!
This is the unfortunate world that we find ourselves in, and it is why we at Stride Funding are so excited to begin to change it. We are offering a variety of different Income Share Agreements that will structure your student debt as a percentage of your future income, as opposed to a percent of your debt. While it may be initially confusing to see why this is so exciting, this changes the entire way in which students, universities, and lenders approach student financing.
This is first because it introduces new flexibility into one’s repayment structure. Since one is paying based off their income level, they will be paying less money when they earn less and paying more money later in their career when they earn more. Thus, the stress of immediate postgraduate repayment is relieved, or, in other words, we can help reduce the absurdly high and continually rising default rates!
In doing so, we are bringing a new approach to measuring colleges: our income prediction models take into account the specific university you are enrolled in and their program, giving lower rates to universities that have proven to have higher post-graduate incomes and lower default rates. This means that students who attend universities with less value will get lower rates on their loans and they therefore will be less likely to attend. In other words, universities that offer less value will be forced to improve!!! And, hopefully, in creating a system where universities are competing to prove their value, these institutions will across the board be forced to at least slow down the incredible increase in their prices.
Finally, Stride Funding is creating a community by connecting students interested in advancing their career, and connected investors who are now literally and figuratively invested in these students. This can offer new opportunities for students with traditionally fewer contacts to network with higher-income professionals. In fact, Stride Funding is providing an online network for our community members that makes these connections fast and easy, and will sponsor meals between investors and students that live near each other!
There is much to be excited about, and we hope you are as thrilled as we are to be changing such a burdensome industry. Welcome to the Pact!