By Michael Travis
News Editor
Take a hike, creditors.
The days of paying countless thousands of dollars of compounded interest may soon come to an end.
A new solution is on the horizon for students who must face the skyrocketing costs of college tuition, which have increased 27 percent over the past decade.
Two years ago, a company called Iempower began with the mission to invest in actual people instead of businesses.
These people included professional athletes, entertainers and entrepreneurs.
In return, investors would then receive a portion of the individual’s earnings for a set number of years, if and when they were successful. The returns the investors received from these individuals were equal to or better than returns that they received from corporate stocks and bonds.
Iempower recently turned its focus to college students, forming a new branch of the company called MyRichUncle.com.
The company’s belief is that “the greatest contribution any one person can make toward his or her future is to get the best education money can buy.”
The program is in its first year, and has been successful thus far. It has received $750,000 from investors and provided aid for 65 of its 1,000 student applicants.
The educational shift of the company came as a result of the experience Raza Khan, one of the company’s founders, had with college tuition rates.
“My father, a successful banker, took great care of us, but we ran into financial difficulties along the way,” Khan said. “I had enough income that I did not receive much financial aid but did not have enough income to cover the full cost college.
“I borrowed some money and began working during school to cover the rest. I knew secondhand some of the difficulties people faced as a result of their loan obligations,” he continued.
The company is designed to give college students a way to avoid the enormous amount of interest that builds up on bank-issued college loans, which is sometimes as high as 12 percent.
Instead, borrowers agree to have 10 to 15 percent of their salaries capped and repaid to investors for no more than 10 years.
The repayment plans are also flexible, varying on the economic status of the borrower.
“For every 10 students, you have two or three who decide they’re not going to work, two who become social workers or priests, and you’re not going to make any money on them,” said Mukund Krishnaswami. Krishnaswami is a managing partner in Revolution Capital, one of the companies that takes part in the program.
“But maybe you get one person who becomes the next Bill Gates,” he added.
The “Bill Gates Factor” is exactly the reason that the company has attracted so much attention from investors around the world.
A student who earns a large salary will have to pay his investor a large amount of money, since the contracts are based on percentages, not dollar amounts.
“What’s incredibly exciting about this,” Khan said, “is that it is one of the few occasions where social ambitions and business ambitions are pursuing the same goal.”
However, there is a certain risk that college students take.
The more successful they are out of college, the more they are obligated to pay those who “invested” in them during the course of their education.
Interest on college loans can range anywhere from 5 to 9 percent, according to Pepperdine’s office of Financial Assistance. In essence college students are “betting against themselves” when borrowing from the company.
Pepperdine freshman Chris Barrett attracted a storm of media attention when he became one of the first “sponsored” college students in the world.
He had his first year of college paid for by First USA bank, as reported by the Graphic earlier this year.
Although he is not currently part of the program, he is well versed in ways that college students can avoid debt. He has appeared in People magazine and the Today show, giving advice on ways to deal with the enormous costs of education.
Barrett has heard of MyRichUncle.com and what it can do for students.
“There are many different ways to keep from going into debt,” Barrett said. “Every student’s situation is different, and going with MyRichUncle.com may be an option. I would recommend trying to get sponsored by a company like I did, getting loans or other forms of assistance.”
January 24, 2002