PAVE offers innovative, controversial alternative to student loans

By Riley Johnson, News Net Nebraska

A new business has introduced an alternative to help students finance their higher education and its model has some college administrators crying foul.

PAVE, based in New York City, pairs students with investors, who back their education interest-free and, in return, receive a share of their annual income for 10 years.

“I think what we really wanted to do was bring another option to the table,” said Carlo Salerno, PAVE’s head of growth and a longtime education economist.

PAVE bills itself as a way around the traditional system for highly motivated, passionate prospects, but UNL’s Craig Munier calls the PAVE model “exploitative” but said the current student loan system needs reform.

“Reminds me of (…) years ago when you could book passage from the Old World to the New in exchange for indentured servitude,” said Munier, director of Scholarship and Financial Aid at UNL.

At the time, only the wealthy could afford passage from England to the Colonies yet they needed cheap labor to work on the plantations, according to a PBS report on indentured servitude in America. Colonists developed a system to attract workers whereby the workers became servants for wealthy landowners for several years in exchange for their passage across the Atlantic Ocean.

Munier said the higher education environment today seems just like that time. Tuition has steadily risen at UNL since the mid-1980s, according to UNL’s Institutional Research and Planning.

The most current national student loan data shows about 13 percent of those who began loan repayment in 2009 had defaulted by 2011, according to the Project on Student Debt.

But Salerno disagrees.

“A loan in and of itself is more of indentured servitude than a contract like this,” said Salerno, who said loans force full repayment plus interest.

In the PAVE model, prospects may or may not have to pay their backers the full amount of their investment, he said. That’s all dependent on the income percentage the prospect and backer negotiate in the contract.

So far, the eight funded-prospects have raised between $3,000 and $50,000 and agreed to share between 0.5 percent and 5 percent of their income, he said.

PAVE does not allow prospects to share more than 10 percent of their income with backers, Salerno said. That’s consistent with the federal government’s income-based repayment plan.

But Salerno and Munier differ on income-sharing altogether.

Munier said he views committing a percentage of your income to an investor in exchange for their financial backing as a plan that would  “appeal to students who want to bet against themselves.”

But Salerno said the income sharing provides a return on investment for the backer and creates a natural mentorship between backer and prospect driven by the economic incentive to maximize the prospect’s income.

Though not required to, backers often act as mentors for prospects, he said. They want to help their prospect succeed to help garner the best return on investment.

Munier said he sees this model creating a power dynamic in education that could put too much pressure on students. He said he would be wary of any expansion of this model.

“Do we really want to get into people sponsoring students like you sponsor a zoo animal?” Munier said.

UNL students Thomas Gardels and Laura Piñon said they think PAVE’s model sounds like a good idea.

“It’s opening a door for people right now,” said Gardels, a senior agribusiness major who works on a farm in Wilcox to keep from taking out student loans.

Both he and Piñon agree the current system loan system needs changes.

Piñon has accrued more than $15,000 in debt through federal loans, and the junior pre-med and biology major said she laments that her loans don’t come with any mentorship attached.

“(The government) just (cares) that I pay the money back,” she said.

Munier said he supports a Congressional plan to rehaul the repayment program that would have graduates pay a percentage of their income instead of loan payments.

That bill, Earnings Contingent Education Loans (ExCEL) Act of 2012, was introduced in December 2012 by Rep. Tom Petri of Wisconsin.

For PAVE, the coming months are all about expanding the number of prospects and backers, Salerno said.

And one other thing.

“For us, the most important thing right now is to prove the concept,” Salerno said

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