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programs. Investors have launched them in Chicago, Sacramento and another is soon to open in Austin, Texas.
In Indiana, Purdue University President Mitch Daniels is aiming to start a program for Purdue students in the
spring called Bet on a Boiler, referring to the school nickname.
Clearly there is an explosion in student debt and the default rate is a concern, said Mr. Daniels. That got me
seriously thinking about this, not as replacement [for federal loans] but as a new option.
The idea has been around since the 1950s, but it wasnt until student debt began to explode that entrepreneurs
began to experiment with the model. In 2002, a Vanderbilt University professor co-founded a for-profit
company called Lumni, which has made about 7,000 loans to students in four countries in South America and
has a rate of return of between 10% and 15%.
The concept has also proven hard to execute. Oren Bass, co-founder of for-profit human capital investor Pave,
said his company received well over 10,000 applications for its income-share program for college between 2012
and 2014. It was able to fund only 70 students because he couldnt attract enough institutional funds to scale the
program to a viable size.
Pave eventually pulled the plug on the program, Mr. Bass said, partly because big investors feared a lack of
legal protections if a borrower declares bankruptcy or refuses to pay.
U.S. Rep. Todd Young (R., Ind.) filed a bill to bring clarity to income-sharing arrangements last month,
although previous efforts have failed to win passage. The bill says borrowers dont have to pay back any of their
income unless they earn at least $18,000. It also caps the length of time a borrower is obligated to pay to 30
years and states the debt is not dischargeable in bankruptcy.
Andrew Davis, founder of Educational Equity in Chicago, which offers income-share agreements, has
addressed the issue of legal clarity by so far limiting investors to his family and friends. He further tries to
reduce risk by entering into agreements only with Chicago teachers who want to attend graduate school at one
of four university programs designed to train school principals. He hopes to expand soon to cover nurses and
other professions with strong demand.
If you start a new medical-insurance business you dont go looking for the sickest people to insure, he said.
Among his customers is Alaric Blair. Mr. Blair, 49, was an elementary-school writing and English teacher who
wanted to become a principal. A 2008 bankruptcy prohibited him from even getting a credit card, let alone
borrowing the $10,000 he needed to finish his masters degree to enter administration.
Mr. Davis lent him the money for 5% of his income for 5 years. Mr. Blair said he expects to pay about $20,000
for the loan.
I was running out of options, said Mr. Blair, who earned his second masters in June 2014 and is now an
assistant principal at a Chicago elementary school. This was a great route for me.
Meanwhile, under the terms of her loan, Ms. Gonzalez could pay as much as $60,000 for the $15,000 she
borrowed from 13th Avenue under the terms of her loan.
But if Ms. Gonzalez, who hopes to one day return to school and become a physicians assistant, ends up paying
more than she would have for a conventional loan she is OK with that. Im willing to pay it forward and give
someone else a chance to go to school, she said.