Program Links Loans to Future Earnings

He needs $80,000, even after scholarships and grants. Mr. Toole wants to finance a big chunk of that through a new company called Pave, which connects people like him with “backers.” If he reaches his goal and raises $30,000 from Pave investors, he will pay them 7 percent of his projected annual salary for 10 years.

“If I decide to go into the Peace Corps or do something like work for a major firm that didn’t pay well for the first couple years out of school, the percentage of total income would be quite a bit lower than standard 10-year loan paybacks,” said Mr. Toole, who has commitments for nearly $11,000 so far.

The program comes with other perks: the investors, who clearly want to see their human investments succeed, often double as mentors.

“This is me reaching out and seeing if I can get access to people who can guide me through my career and push me around through their own networks,” Mr. Toole added. “I need solid financial mentorship. I am not great with money, and my parents cannot provide that for me.”

This alternative form of financing is unlikely to put even a tiny dent in the vast market for federal and private student loans. But with student debt approaching more than $1.2 trillion, particularly at a time when young graduates are facing high unemployment, it’s not that surprising that some people find the idea alluring. Viewed through another prism, critics call it a form of indentured servitude.

The program enrollees I spoke with found the whole idea liberating. They said they preferred to pay back a living being who took a risk instead of a faceless institution; it felt less like a loan, they said, and more like an opportunity. If a borrower wants to take a year to start a new company, for instance, or their income drops below, say, the poverty level, they aren’t required to make payments. The risk is shouldered by the investor.

The whole notion of using a portion of your future income to pay for higher education recently made headlines in Oregon. The state Legislature there approved a bill that would create a pilot program: instead of tuition, all students enrolled in state colleges would pay, say, 3 percent of their future income for about 20 years into a state-administered fund. That means some would pay more for their education than others; the program’s supporters say people should think about it as a social insurance program, like Social Security.

Pave and its competitors, including a company called Upstart, operate differently. Upstart, for instance, tries to estimate what you are likely to earn, based on factors including the college attended, the field of study and grade point average, among other things. “Harvard M.B.A.’s have a very high earning potential,” said Dave Girouard, the founder of Upstart and a former Google executive, “and that means they can raise more money for a lower portion of income.”

Among its small crop of first users, individuals have raised about $25,000 on average, though Rachel Honeth Kim, a Harvard graduate with an M.B.A., recently raised $100,000 from 37 investors, including Mr. Girouard.

Many of the people enrolled with companies like Pave and Upstart use the money to finance their own companies and ideas, or, like Mr. Toole, to further their education or pay off existing student debt. A freshman seeking to bankroll an entire college education isn’t the type of candidate these sites are seeking, at least not now.

The companies are also ushering the most promising candidates onto their programs, often with big entrepreneurial plans or causes that are likely to catch investors’ attention. But nobody is guaranteed to raise enough money to meet their goals.

There are other risks, too. If a person is wildly or even moderately successful, they may pay far more than they would owe using a traditional loan. And people with big dreams in lower-paying professions may not necessarily raise enough to cover their education costs.

Of course, if borrowers have enough income to pay their obligations but fail to, the whole experience will begin to feel more like a traditional loan. Delinquencies will be reported to the big credit bureaus. Collection agencies will get involved. (Borrowers will be held to their contracts. Pave and Upstart also had discussions with the Consumer Financial Protection Bureau, a federal regulator that oversees financial products and services.)

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