ImpactAlpha, Sept. 17 – MPOWER’s founders set out to help promising international students pay for a U.S. education when few lenders would lend to them.
The borrower data in MPOWER’s first impact report offers a glimpse of how to design more responsible and inclusive education finance, for students from the U.S. as well as around the world.
MPOWER’s goal when it was founded in 2014 was to reach students who couldn’t otherwise pay for such schooling and ensure that they weren’t saddled with debt they couldn’t repay. The company designed what it felt was a responsible underwriting model, focusing on students’ future income and loan caps.
“We didn’t want to solve one problem by creating another,” founder Manu Smadja, himself once an international student in the U.S., told ImpactAlpha.
Today, the Washington, D.C.-based company partners with 350 school and has originated more than 2,000 loans to students from 120 countries and to undocumented learners in the U.S. Its model recently got a vote of confidence in the form of a $100 million loan facility from Goldman Sachs.
- Underwriting potential. MPOWER provides loans of up to $50,000 for a maximum duration of 12.5 years for a flat rate of about 12%. Because its borrowers often have no credit history in the U.S., the company’s forecasting model focuses on students’ future earning potential. Approximately 85% of its borrowers pursue graduate degrees and nearly half are focused on STEM fields. It also steers students towards more affordable degree options, like the University of Georgia, where a computer science degree costs a fraction of what a student would pay at an elite private school, Smadja said.
- Reaching its target. Half of MPOWER borrowers are coming from families that earn less than $15,000 annually and 17% from families that earn less than $2,500 annually, according to MPOWER’s first impact report. Nearly 80% of male and 93% of female borrowers said they had no other option to finance their degrees. “Their salaries go from $5,000 to $10,000 per year to $70,000 to $80,000 per year,” Smadja noted.
- Financial partner. MPOWER doesn’t have an interest deferment option, like U.S. federal student loan programs. The company requires borrowers to at least make interest payments on their loans while they’re enrolled. MPOWER claims its monthly payments cost no more than an average cell phone bill and get reported to credit bureaus, which helps students build their credit profile.
- Carrot versus stick. MPOWER fits among a small cohort of organizations trying to shift education finance to a student-centered model. San Francisco-based Sixup is a student lending platform that helps low-income students attain college financing by focusing on outcomes rather than credit scores. A growing number of educators, meanwhile, are using income-share agreements as an alternative tuition model, allowing students to repay tuition after they’re employed and based on a percentage of their salaries.
There is “a lot more room to be collaborative” in the higher education sector, says Smadja. “We see a lot of U.S. students who are in distress getting beat up by their school and their lenders. We want students to be successful and would love to see the industry change in that direction.”