Connecting College Students and Alums in Peer-to-Peer Lending

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Connecting College Students and Alums in Peer-to-Peer Lending
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American universities are renowned for their progress and innovation, yet our nation's student loan market is in crisis. The rising cost of tuition, combined with the exorbitant cost of debt, deters many young Americans from attending college or leaves them with incredibly burdensome debt afterwards.

Nearly two-thirds of American undergraduates will finish college with an average of $19,000 in debt. Much of this spiraling debt is due to a dearth of knowledge by students and misaligned incentives with financial institutions. In addition, our current economic crisis is compounding problems: interest rates are skyrocketing as many banks are drastically scaling back their student loan offerings and some are ceasing student loans altogether. In addition to cutting their private offerings, banks are also reducing the amount of federal loans they offer, citing capital constraints and concerns about profitability. Although some colleges and universities have enacted ambitious financial aid programs to address this problem, their actions alone are unable to meet this challenge. And while recent efforts by the new administration in Washington have been laudable steps in the right direction, legislative reform can be a slow process that yields compromise-laden bills that are far from perfect.

At Harvard, a school with an enormous endowment and a comprehensive and generous financial aid program, many of my classmates struggled financially because of the student lending industry's inefficient and sometimes exploitative model. I was fortunate to have parents who could provide my tuition costs, but I often found many of my peers forced to compromise their college experience. Many--even those on financial aid--were saddled with debt and were forced to forgo opportunities in public and community service in order to meet their financial obligations. The juxtaposition of wealth and need at Harvard was impossible to ignore. Immersed in it, I kept in mind a lesson my father always instilled in me: there are two ways to approach a problem -- to observe it or to try and fix it.

A year and a half ago, my friend Nimay Mehta and I began to conceptualize the application of peer-to-peer lending and micro finance to higher education. Our goal was to create an online platform that would enable alumni from all backgrounds to help students in need. Over a month ago we launched UniThrive.org, a not-for-profit website that connects college students with alumni in order to facilitate peer-to-peer alumni-to-student microloans. The loans are interest-free and are for paying tuition only.

Peer-to-peer lending is a financial transaction that occurs directly between individuals without any involvement or participation from a traditional financial institution. Recently formed peer-to-peer lending networks, such as Kiva.org, have validated the model by successfully facilitating loans to individuals with the poorest credit standing and to impoverished entrepreneurs in developing countries. Kiva boasts a 98.5 percent repayment rate on over $77 million in loans.

By allowing alumni to lend as little as $50, and asking for loans as opposed to donations, UniThrive appeals to the philanthropic motivations of all kinds of alumni. We provide loans at 0 percent interest and focus on helping students lower their costs rather than on growing our profits. UniThrive not only provides better loan terms for students, but also hopes to cultivate relationships between individual alumni and their student beneficiaries. It provides an opportunity for alumni to put a face to their contribution, providing a transparent and meaningful engagement unlike any other option currently available.

Students on UniThrive can currently borrow up to $2,000. Though we eventually plan to increase this amount, my partners and I have been inspired as students have told us the extent to which even this amount eases their financial burdens. One of the first students to request a loan through UniThrive explained to me that both of his parents are currently unemployed and that he would have otherwise struggled to come up with the money lent to him.

Since our launch, we have received hundreds of emails from students and parents asking if and when we plan to expand. It has motivated us to hear from students asking for loans as a last resort against leaving colleges and graduate programs they cannot afford to attend. This outpouring of interest and support has further reinforced our vision to expand UniThrive across the country. We initially launched at Harvard primarily for logistical reasons, but we are currently working to bring UniThrive to other universities and their alumni and student communities.

Nimay, our third partner Tanuj Parikh, and I are genuinely humbled by the feedback we've received. We believe that UniThrive is a creative solution to a real problem, but recognize that with every new idea come many challenges. Though roadblocks lie ahead, we will continue to seek innovative and effective solutions that help as many students as possible. It is our hope that others do the same, because only collectively can we solve this issue.

UniThrive is a 501(c) (3) (pending) non-profit organization. UniThrive will never profit from any loans issued on the site.