It’s a crappy time to be a recent college graduate in America. If that’s your demographic, you probably have tons of student debt – $26,000 on average – and to make matters worse, the unemployment rate for your age group is over 13%, which is nearly double the overall national average. You’re probably having a tough time finding a job at all now, let alone a job in your field, and the idea of actually pursuing your dreams probably seems totally fruitless. With as much student debt as you have, it’s going to be tough to get a loan to fund that small business you dreamed of starting, so it’s best to just take whatever job you can get to start paying it off, right? Not so fast. A company called Pave wants to help.
Pave aims to do this through something they’re calling a “social financial partnership.” Pave co-founder and CEO Sal Lahoud explains: “There is a different way than borrowing and that is, you take a partner. Someone who invests in you and is aligned with you. And we’re building a democratic way for people to do this.” It sounds a lot like crowdfunding companies, such as Kickstarter. And it is. The service matches young entrepreneurial types called “backers” with starry-eyed young “prospects.” The backers mentor the prospects and fund their endeavors.
Unlike with other crowdfunding services, however, Pave prospects aren’t limited to a specific project. They can use the money in whatever way they think will best help them achieve their career goals, whether that’s paying off student debt or investing in supplies to get their business started. Basically, it’s all about easing the financial burden of launching a career. Prospects are free to change their goals over the course of their contract, too. Pave’s founders believe that when people are able to pursue their passions in life (rather than a career that pays the bills but bores them), they’ll ultimately contribute more to society.
Lest you think this is totally altruistic, it’s not. Pave prospects have to pay their backers an agreed-upon percentage of their annual earnings over the course of their contract. Unlike traditional loans, though, there’s no interest. What’s more, the amount that must be paid back fluctuates along with income instead of remaining static. If a prospect’s earnings fall below the poverty line, they’re not required to make payments during that period. Basically, if no money is made, no money is owed.
Pave’s plan sure sounds great. To jump-start your career and pay off your student loans without dealing with banks and creditors? You can’t beat that. Just remember that this is a non-traditional type of loan. If you can’t get a loan to start your business because your credit sucks, this won’t do much to help you mend your situation. Furthermore, a Pave loan isn’t regulated the way a traditional loan is. What if your backer stops paying up? What if you don’t live up to your end of the deal? Might potential backers be scared off by the possibility that you could just take their money and run?
Maybe, but probably not. The Pave team spent an entire year thinking about potential problems, and the company ultimately crafted a legally binding contract that foresees just about anything that could go wrong. They even consulted with the CFPB and the Securities and Exchange Commission.
If you’re one of the millions of millennials who are struggling to get ahead in life, Pave could very well be a nice option for you. It’s great that the company is empowering young people who otherwise probably couldn’t get loans, but the really neat thing is how the service fosters relationships between prospects and backers. We can imagine that, in some cases at least, lifelong student-mentor friendships could blossom. The kind of insight and knowledge that goes along with that just can’t be bought. And who are we kidding – the money part is really nice too.
What do you think about Pave? Would you use it to fund your career and pay off your student debt? Would you be a backer? Let us know in the comments.