In very broad terms, education is considered the solution to many of the world’s most significant problems. In my personal studies I have noticed a common theme suggesting that investment in human capital is the single greatest determinant for successful development in the long run. One of the major challenges we face both here in the US and abroad is creating diverse public and private financing options that make higher education a possibility for all qualified students. We seem to be in the midst of one of those â€ścreative/destructiveâ€ť periods for access to finance in higher education. For a quick, but telling glimpse into the â€śdestructionâ€ť part, take a look at the graph below.
It is this same environment which produced an unsustainable credit bubble and massive student debt that is also enticing innovators to produce new financing models.
If you attended a four-year college, you probably combined a mix of scholarships, grants, federal loans, and private financing. You worked hard and earned the scholarships, which can be funded by college endowments or private donors. If you received any need-based grants, it was because you had a lowÂ FAFSAÂ ExpectedÂ FamilyÂ Contribution (EFC), or maybe you were a well-suited applicant to a specific grants program (side note: I recommend playing around with the EFC calculator, pretty enlightening). Maybe grandma and grandpa had deep pockets, or maybe mom and dad had been preparing for this day with a 529 Plan, but I’m assuming many of us instead turned to traditional student loans. In this case, most of us, as usual, were at the disposal of the lenders. Options were pretty standardized and grossly favored students who had parent cosigners with high credit scores. Many talented students were left out on the sidelines.
What if students had other readily available options than commercial banks and Direct Loan programs? What if your likelihood of receiving college financing wasn’t based on credit scores, but rather on your talent, merit, and potential as a student? Is higher ed finance ready for a true market-based approach? Good questions for an entrepreneur to be asking…
Enzi describes itself as an “equity based education funder.” The idea is that individual socially motivated investors can look through a list of “Enzi Fellows”, pay for the upfront cost of schooling, and then recoup their investment over time as a percentage of the Fellows earnings. Nothing very new about this – itâ€™s royalty financing – but applied in a new way, and only made possible through an internet exchange platform. Itâ€™s certainly interesting, but is it really a more just and sustainable option? Or, is it somehow predatory on bright young people who are without any other means to pursue school at the next level? Could you envision a world where investors had “human portfolios” alongside their stock portfolios? What if you made a bet on the next Bill Gates or Steve Jobs?
Other organizations likeÂ Vittana are up and running with innovative models that are contributing to the expansion of higher education especially among international student populations. I often wonder how many brilliant thinkers have been squandered by the inadequacies of our educational system. How many world changing ideas havenâ€™t been given the chance to emerge? Would a market-based approach like Enziâ€™s do anything to change this? Iâ€™ve clearly asked more questions than presented answers here. I hope you may have some instead.
And hereâ€™s one question to end this post, Â which is perhaps the most relevant today: is it worth it to go to college at all? Peter Thiel seemsÂ toÂ thinkÂ otherwise, but thatâ€™s a topic for another blog.