There is a new alternative lending platform on the scene, and it’s called EdAid. While we’re familiar with those crowdfunding and peer-to-peer platforms that offer loans to businesses, equity stakes in startups and invoice trading opportunities, EdAid is doing something a bit different: it’s creating a competitor to the government’s Student Loans Company, and giving students an alternative loan option. Students are validated, build an appeal, and can then receive funding from their own connections, companies and other organisations. I caught up with founder and chief executive Tom Woolf to talk through how the platform works and what he’s hoping to achieve.
The Student Loans Company charges 3 per cent per annum plus inflation pegged to the retail price index. With you, students will simply repay the money they borrow, with the capital sum staying in line with CPI. Tell us a bit more.
By eliminating compound interest rate charges, a student can save up to £30,000 or more over the lifetime of their EdAid loan.
We occupy a space between social impact investment and traditional P2P lending. We aren’t a charity – we’re a commercial fintech business – but the whole point is to provide a sustainable and fair solution for students at scale.
The outlook for student finance isn’t great. Student debt in the US alone stands at $1.2 trillion, and it’ll be $3 trillion by 2020. No-one is looking more deeply into it and governments don’t have an answer. The UK government is selling down student loans at 18p to the £1 to private debt collectors just to shift it off its balance sheet. The current funding system is bureaucratic, expensive and lacks innovation. It punishes student and taxpayer alike.
A student arrives on the EdAid platform. What happens then?
A borrower needs to be a UK-based student with the permanent right to remain. We verify their status and perform checks, before ensuring that they’re studying at an accredited institution. Then we conduct our proprietary creditworthiness assessment. As a platform, we don’t offer any priority based on demographics. It’s vital to us that we move away from the “postcode, white middle class” mindset. We look for students who are bright and have ambition, balancing that with where they’re intending to study and the value of that degree when assessing creditworthiness.
Presumably it’s pretty tricky to do that for an 18-year old?
It is, and we’ve created our own scoring algorithm. An 18-year old has a very thin credit file, if any at all. We verify their bank account, but can also look at other factors, though, like how they perform on the site and how they conduct themselves on social media.
Once they’re approved, they then create an appeal: “I’m X, looking to study Y, and I need to borrow £3,000”. We then push that request out to their network – so they’re appealing to friends and family. We also surface their profile with companies, investors and foundations that the student is interested in or could be relevant to. So if they’re studying biochemistry, we can put it in front of pharma firms that want to engage or recruit the best students.
We also enable friends and family to vouch for students. This is an important part of what we take to corporates looking to back students – an extra layer of reputation confirmation, if you like.
Each individual or organisation can make an investment in the student fully aware that their investment is always at risk, but they are taking a calculated bet on the potential of the student. The typical investment range is £30-£70 for individuals and £200-£500 for companies. We then consolidate the investments into one fully-repayable loan. A student has a contract with each investor, consolidated and administered by EdAid. We aggregate this process but we’re not party to the loan. Through our proprietary software, we facilitate the initial loan and manage all administration through to full repayment post-graduation.
You’re obviously far more involved in the loan process and its outcomes than most platforms. Can you talk more about that?
Well we’ve spent a lot of time listening to students. We’ve been to numerous campuses up and down the country and, just by word of mouth, have got 7,000 sign-ups. We will be moving slowly – funding 1,000 students this year, 5,000 the year after that and then 10,000 in 2017. The value we generate is far greater than just providing financial support. By creating an ecosystem through which we can help students fund their education this year, we can help them find gainful employment post-graduation and in turn support other worthy students in the future.
The corporates are particularly excited: not only do they surface potential employees, but they acquire brand advocates in the form of students and, crucially, it provides an option for disadvantaged students who don’t have the social connections to secure funding and access to higher education.
You can’t announce the companies you’re already working with yet, but there are some huge names. What will this mean for students?
It’s going to open up access enormously. For many big firms, once you’re in, it’s not about what university you went to, it’s about how you perform. What’s so powerful about EdAid is that it gives students who didn’t go to top universities because of socio-economic constraints the opportunity to outperform expectations. And it all comes down to data.
Over time, we’ll know exactly how someone has performed at university and match them with the best employment opportunities, removing race, religious or financial barriers.
Large businesses are already asking us if we can connect them with school leavers who share certain traits, at an earlier stage than they would typically recruit. They are looking to get ahead of the competition, curate future talent and surface the outliers who normally don’t apply via their traditional acquisition channels.
What about the investor side of things? Are there other plus points about EdAid they should know about?
We’ve partnered with GoCardless, who via their robust payments technology enable us to make instant direct debit payments, rather than paying exorbitant credit charges. Safety and security is another major positive of using EdAid. All loans are legally binding and administered by us, which removes the pain for friends, families and corporates wishing to back students, but without the time or ability to manage the requisite contracts and payments.
We’ve also developed (the not-so-innovatively-named) HEIS – Higher Education Investment Scheme. Built upon the framework of the Enterprise Investment Scheme (EIS), lenders would get a 30 per cent tax incentive when they invest in providing low-cost, social impact student loans. It’s essentially a new community bond system, and it could fund every student in this country, while reducing government costs by half. We hope to present this to the Treasury later this year. If you use institutional impact investment funds and private capital, the costs are reduced systemically and wealth becomes regenerative, staying in communities and reducing indebtedness.
Undergraduate students in the UK alone are worth £30bn a year to the economy, notwithstanding the macro-impact they bring as the UK’s future teachers, nurses, scientists and technologists. There aren’t many markets like that and, as it stands, it lacks innovation, support, transparency and fair competition.