Investment Group Wants Students To Rethink College Loans

Forking out thousands of dollars for a college education has long been viewed as conventional wisdom when it comes to investing in career paths that bring stability and long-term financial security. But what if there were a different logic applied to financing a college education. Host Michel Martin talks to Noga Leviner, who leads the investment group Lumni, about her organization of creative, non-traditional alternatives to paying for college.

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MICHEL MARTIN, host:

We wanted to offer another perspective on this story. Now, obviously, the logic driving the student loan industry is that you have to spend money to make money. You have to invest in college if you want to be successful and to make more in your career. Well, what if somebody applied a different logic altogether and offered or created a different kind of student loan. That's the thinking that spurs Lumni Incorporated. To explain further, we've invited Neoga Leviner, general manager of Lumni, USA, and she's with us now. Thank you for joining us.

Ms. NEOGA LEVINER (General Manager, Lumni Inc., USA): Hi, Michel. Thanks so much for having us.

MARTIN: Now, let me see if I understand this. Your organization loans students up to $6,000 a year to help finance their educations and then once they graduate they have to do what?

Ms. LEVINER: The students are committing to repaying a fixed percentage of their income, which we agree with them at the time that they sign a contract with us, for a certain period of time. We're typically talking about 120 months. So that's 10 years after they graduate. So that obligation is complete after those 10 years are up, regardless of how much or how little the student has paid up until that point.

MARTIN: And why do people want to do this?

Ms. LEVINER: I think a lot of students, and particularly folks from families where there isn't a lot of experience taking on student debt or maybe there aren't a lot of examples of folks that have successfully gone to school, graduated, and gotten high-paying jobs, feel really intimidated by traditional student loans. They often, you know, will just have a really strong fear of not being able to make their debt payment.

And so with the financing that Lumni offers, students basically know that they're always going to be able to make their payments and that the monthly payment that they owe will really just adjust according to their mean at that particular time.

MARTIN: And where does the money come from to lend?

Ms. LEVINER: Yeah, so we raise money from a variety of different sources ranging from foundations to corporations to individuals that want to contribute to supporting the education of folks in their communities.

MARTIN: And where did this idea come from?

Ms. LEVINER: The concept itself has kind of been floating around academic circles for quite a while, but Lumni was founded by two Colombian gentlemen -from the country of Colombia, that is - who were really interested in pursuing this concept. One of them, Felipe Vergara, is the entrepreneur behind the concept and currently the CEO leads the company internationally. And the co-founder, Miguel Palacios, who's a professor of finance at Vanderbilt University, had really dedicated himself, for almost 10 years, to really developing the theoretical, conceptual and also the practical tools for being able to implement this type of program.

MARTIN: So let's look at two scenarios. Let's say I take a job teaching in the state of Mississippi where the starting salary for somebody just out of school is just under $31,000. And so you sign this contract, you'd end up paying significantly less than you borrowed, right?

Ms. LEVINER: That's right. That's right. So what we're dedicated to, here, is we have a great team of analysts that are really dedicated to making sure that for a particular pool of students, we need to, you know, be able to sort of project how that group of students is going to earn, over, you know, what their earnings are going to look like over a particular period of time, over the 10 years after graduation.

Now, of course, you don't know how the earnings of any one student in that group are going to look. So you may have - you may very well have some students who graduate and decide to go into a really low-paying career. And, in fact, part of the benefit that they get is that, you know, the investors really are taking on that risk. And, you know, one of the things that's really attractive about this funding mechanism, about this program, is that people really do have that freedom of career choice, so they're not locked in.

MARTIN: Well, let's take it the other way, though. Let's say that you decided to go to law school, and that you were hired as an associate at one of the fancy pants law firms, and your starting salary was in the six figures. And in which case, you'd probably end up paying significantly more than you borrowed. Why would you do that?

Ms. LEVINER: Yeah, that's right, exactly. So, you know, what I often tell students when I talk to them about our program is, you know, the thing that's great about this type of funding is that you're always, the payments are always going to be affordable for you. So if you get a low-paying job, then the payments will be affordable. But then on the flip side, the payments are always going to be affordable. So if you end up being a high earner, then, you know, you're going to have to basically contribute - you're committed to contributing a greater dollar amount over time, although for your particular salary it won't be a greater burden for you.

And essentially, what students are really getting with this is just a reduction in risk. You know, because there is a really strong feeling of them being intimidated by, or you know, not wanting to have that burden of having to maybe stay in that high paying job forever. And some students may end up, you know, choosing to go in that direction. But with this type of a price, you know, at least the student can feel comfortable that if something should happen, if they should get laid off, they really always know that the payments are going to be affordable.

MARTIN: What is a person does get laid off? What happens if they're out of employment or if they, in the middle of paying back, say, an undergraduate loan, they decide to go to graduate school, what happens? Do the payments abate?

Ms. LEVINER: Yeah. So, for example, so five percent of salary of zero dollars of earnings is obviously zero, so students don't have to pay anything during times of unemployment. You know, if they join the Peace Corps, if they do Teach for America, if they're in a really low-paying career. You know, they decide to volunteer or take a while to find that first job, then obviously there's no payments during those times.

MARTIN: The point that has been made, though, over and over again, is that the issue here is not just lack of access to funding, but that the cost of a college degree has far outstripped the rate of inflation in recent years, particularly at private schools. Even in public universities, and now that a lot of states are under budget stress, the tuition at public universities is escalating, you know, rapidly.

$6,000 a year doesn't get you very far in a four-year degree. Maybe for, if you're taking a couple of courses at community college, you'd be okay. I mean obviously everything helps, but does it really help you that much?

Ms. LEVINER: Right. Yeah, you know, you'd be really surprised, Michel. If you actually look at some of the statistics, for example, here in California, students in the kind of middle income to lower income brackets tend to have a gap in financing for their college education that's in the $4,000 to $6,000 range. So it's often not a lot of money that students are missing in order to be able to really attend school, focus full time on their education. So, you know, the goal isn't to really solve the entire problem of education finance, it's to meet students, you know, in today's reality, where they do find themselves with this small gap and really just need someone that's willing to invest in their future.

MARTIN: And I understand that this started in Latin America.

Ms. LEVINER: That's right. That's right. So the company started in Chile in 2002, and has since expanded to Colombia and Mexico. And to date we've currently financed 1,700 students in total and we're managing over $13 million that we're investing in the education of citizens of those countries.

MARTIN: And how has this concept taken on in the U.S.?

Ms. LEVINER: You know, it's been met with a really - an incredible amount of enthusiasm. We brought the concept here a couple of years ago and have been really laying the groundwork on the legal side and kind of setting the operation up.

MARTIN: So you haven't extended any loans in this country yet?

Ms. LEVINER: We just did a pilot last year where we financed our first five students. And, actually, just this week it happens that we're launching our first really scalable project of funding students here in California. So we'll be funding our first students through this fund in the next couple of weeks and are accepting applications on an ongoing basis for California residents.

MARTIN: Interesting. Neoga Leviner is general manager of Lumni, USA, which as she just told us, just really started gearing up its operations in the U.S. and she joined us from her office in San Francisco. Neoga, thank you.

Ms. LEVINER: Thank you so much, Michel.

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