Crowdfunding: Why Strangers Will Pay Your Tuition
By BLAIRE BRIODY, The Fiscal Times
May 14, 2013
The crowdfunding economy has officially exploded – “crowds” of friends, family and strangers are funding everything from their latest film project to fertility treatments and vacations. In 2012 alone, over $274 million was raised on the popular crowdfunding site Kickstarter. Now, college students could be the latest to jump on the bandwagon.
It sounds like the perfect solution: The average high-school graduate faces thousands of dollars in debt to attend college, but if their already-working network could pool together funds and invest in their future, the student could see their debt load fall even as tuition continues to rise.
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Campus Slice is the most recent startup looking to help college students raise tuition money through crowdfunding. Students set monthly funding goals and have consistent funds and payments sent directly to the schools to be used for tuition, books or fees (and not for that 12-pack of Budweiser). The founder and CEO, Tony Aguilar, says that having graduated college with over $100,000 in student loan debt, he understands the hardships recent grads face.
A number of other similar sites have launched recently, including Smartn.me, Pave and Upstart. Pave and Upstart are investment-based models, meaning that backers stand to make money from their contribution, whereas Camps Slice and Smartn.me are donation based, and backers don’t see a return on what they give.
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There are also sites like GiveCollege and GradSave, which have many parents registering their newborn or toddler to start asking family and friends to contribute to the child’s future education. And GoFundMe, a crowdfunding site that funds “personal causes” is also popular among college students looking for tuition relief.
With the passing of Jumpstart Our Business Startups, last year’s JOBS Act that loosened regulations on crowd-investing, many expect to see even more education crowdfunding launches. “There are certainly a lot of sites that trying to make a go of it,” says Mark Kantrowitz, publisher of Edvisors, but “I think they’re still searching for the right formula.”
“Pave” works by connecting investors with promising students, or “prospects,” with the expectation that one day they might be able to pay the investors back with income-based payments that are no more than 10 percent of their income for 10 years. After the 10-year time period, regardless of how much they originally raised, the agreement is over, and the prospect owes nothing more.
Backers must be accredited investors and have a net worth that exceeds $1 million. They must give at least $500 to potentially earn a financial of 5 to 8 percent annually if the student makes a decent salary. There are no interest payments or late fees for the students. Instead, Pave will maintain close contact with the prospect to create a payment plan – but there’s little recourse if donees skip out on payments. According to co-founder Oren Bass, that’s okay.
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“A big motivation for backers has been the opportunity to do well by doing good,” Bass tells USA Today. “This means being part of, and having an impact on someone’s entrepreneurial, creative or professional careers. Your backer is fully aligned in your success or failure.” Twenty-two backers and 8 prospects signed up for the launch last December.
A similar example is Mike Merrill, a customer service rep at a software company in Portland, Oregon, who in 2008, offered friends, family and strangers 100,000 shares in himself for $1 a share, and let the new stockholders vote on which business ideas he should pursue and how he should spend his time. Pretty soon, they were voting on personal details of his life – like if he should he move in with his girlfriend, have children, or anything else that might affect his business goals. He continues to consult with shareholders about everything from his exercise regime to his sleep schedule. Shares have gone up to as high as $20.
The donation-based sites – Campus Slice and Smartn.me – aren’t exactly seeing money roll in. On Campus Slice, out of 32 currently-live campaigns, 16 have $0 in funding, and most others have raised only $10-$30 – not exactly enough to put a dent in their tuition bills. Smarten.me only has one campaign on the site so far, featuring a student that raised $10 of her $2,200 goal.
“In practice I haven’t seen them be very effective – most people don’t get funded,” says Kantrowitz. “It’s not a very practical to raise money from strangers to help pay for your education.”
Kantrowitz sees the most promise in sites that encourage family and friends to save for a child’s college early on. Down the road, 529 college savings plans could set up their own version of crowd-saving. “There’s a lot of potential here that’s not yet realized.”
Blaire Briody is a writer and editor at The Fiscal Times and is experimenting with crowdfunding for the first time to write a nonfiction book about the oil boom in North Dakota .