The education loan market is a $1.7 trillion mess.
Defaults loom, staved off only by presidential decree (again). Tuitions rise at multiples from the inflation rate.
And obviously, borrowers spend decades trying to pay everything back. That's, whether they can get a loan to begin with – no easy task, based on Tess Michaels, CEO of Stride Funding.
\”In the non-public lending industry, 92% of non-public loans required co-signers; less than a fourth of scholars actually have access to a credit worthy co-signer,\” she told PYMNTS within an interview. \”There's a massive gap in the market that needs to be filled.\”
The promise of embarking on a rewarding profession is what spurs individuals to take out school loans, she said, for degree and non-degree programs. But with student debt taking more and more out of take home pay, the question arises as to whether it's all regulated worthwhile.
Income sharing agreements (ISAs), she said, provide a flexible option to traditional installment lending's onerous payment schedules.
Through Stride's ISAs, the company extends funding to help students pay for education. These students then pay Stride Funding a percentage of their future income, that is tied to rates the students are expected to earn after graduation on the defined payback period.
Under the mechanics from the agreement, students pay nothing if they're earning within minimum income threshold, typically $30,000 to $40,000 annually. Upon earning wages above that threshold, they resume repaying their ISA at the same percentage rate.
Stride Funding has estimated that students generally will fulfill their obligations within 60 ISA payments (though Michaels noted the duration can be as short as several months), and within a 10-year timeframe (even during duration of downturns, the contracts with Stride Funding are extended no more than one month). That's in direct contrast towards the traditional education loan that can saddle an individual with debt that you will find paid on rigid terms no matter how their paycheck is faring.
The interview came against the backdrop where, earlier this year, the company asserted it's partnered with Encina Lender Finance and other credit funds, via a $105 million senior credit facility which will let Stride fund students pursuing alternate education in high-growth technology and trade fields.
The $105 million facility, said Michaels, represents further gains for that alternative education space. She noted the facility will be aimed toward non-degree programs, which saw significant enrollment spikes during COVID-19, in an effort to pursue new (or deepening existing) professional expertise. Those self same programs impulse students use of federal lending conduits, Michaels told PYMNTS.
\”Students wind up spending of pocket for expensive private loans,\” she said.
But, Michaels said, outcomes-based lending products, for example available by Stride Funding, align the costs and value of education.
Drilling down a bit, she asserted Stride Funding's loans are a \”healthy mix\” between degree and non-degree programs.
The at their peak segment, so far, is within nursing, in which the company funds bachelor's and master's students across 140 universities.
\”In our degree market, we always advise students to first take scholarships and grants,\” said Michaels. \”Then they take subsidized federal funding. After which next if they are taking a look at private loans versus unsubsidized federal loans, this is where they look at products like ours.\”
In the non-degree market, the company funds students in bootcamp and certificate programs (where the cost could be about $10,000). The business's online platform leverages advanced technology for income and employment verification in tandem with firms like Plaid.
\”We don't wish to be only a financial provider – we want to partner with these students,\” said Michaels.
The typical percentage of income share is in the single digits, said Michaels, which makes it much simpler to budget the cost of advanced schooling along with anything else in life.
Looking ahead, Michaels said there is a \”huge movement towards outcomes-based funding,\” and noted that Stride Funding also offers deferred tuition plans, where payments are fixed, and triggered with a graduate's income level.
As Michaels told PYMNTS: \”We're aligning the price of education with the value of that education.\”