Community Education Bond Enlists Business School Alumni to Invest in Loans for Current Students
Since the credit crisis, international students have faced harder times obtaining student loans for graduate management education. In response, three INSEAD alumni have established an innovative community education bond that calls on business school alumni to invest in their successors, the Financial Times reports.
Founded by INSEAD alumni Cameron Stevens, Ryan Steele and Miha Zerko, Prodigy Finance is a standalone organization providing an alternative for financing to the credit unions and other solutions some schools have turned to for their overseas students. Prodigy’s lending model is based around persuading INSEAD alumni to invest in their successors by putting money into the community education bond. Based on a predictive approach that takes into account students’ potential earnings, the model helps reduce risks to investors.
Investors get a good rate of return, and the system works because students don’t want to default on loans that have originated with alumni, Stevens told the FT. “We outperform fixed deposits and the FTSE,” Stevens said, noting that investors get the base rate of return plus 4 per cent.
Prodigy lent €5.5m in 2010 and plans to lend nearly double that in 2011. According to the FT report, the company plans to launch an extended platform with other business schools next January that could see total loans of €50m next year. Already, the company works with Vlerick Leuven Gent Management School in Belgium and Skolkovo in Moscow.
Prodigy is one of a few organizations looking for solutions that work across business schools. In the United States, Kevin Moehn, a consultant to the higher education funding market, is also developing a standalone product for international students in the U.S. “The need is still there. I have not seen in the market a broad-based non-co-signed loan for international students.” he told the FT.
Some U.S. schools, including the University of Chicago Booth School of Business and Northwestern’s Kellogg School of Management, have joined a program with Deutsche Bank brokered by the Graduate Management Admissions Council, which administers the GMAT. This program, which Moehn helped design, allows international students to receive loans without a U.S. co-signer by making the schools the de facto co-signer. According to Stacey Kole, deputy dean for the full-time MBA program at Booth, about 50 percent of international students at Booth take advantage of the program, which is known as Alps – affiliated loan program for students.
Meanwhile, other U.S. business schools, such as the University of Pennsylvania’s Wharton School, the Darden School at the University of Virginia and the Haas School at UC Berkeley have turned to nonprofit credit unions to finance international student loans.
For the complete Financial Times story, click here.