Rip Apart My Idea #1: “Invest In Me”
A Theoretical Business – “InvestInMe Inc.”
How absolutely crazy it is that the average 4-year college graduate leaves with an average of $25,000 in debt. 79% of med school graduates have more than $100,000 of student loan debt, with the average a mind-blowing $156,000! This debt disease has been proven harmful by decreasing the amount of future doctors, teachers and inventors who would otherwise complete their schooling and go on to help our population for decades, but choose to be able to afford their food instead.
With tuition consistently rising year after year and laws requiring tuition caps unlikely to pass anytime soon, there is no help in sight. InvestInMe, Inc. plans to change this.
InvestInMe’s mission is to help highly achieving students avoid student debt by allowing outside investor(s) to pay for their schooling in exchange for equity in their future earnings. Similar to valuing a company, the student’s value will be determined by a proprietary algorithm combining aptitude, GPA, social characteristics, direction of study and future profession. The brighter the student and higher future potential salary, the better score received. Just as the students are ranked for risk and value, InvestInMe’s private investors are screened to ensure they will be able to meet all costs in the investment.
Let’s take a look at a potential candidate for InvestInMe
- Amanda Johnson
- 18 years-old
- Highschool GPA of 3.8
- Top 5% of her class
- Member of the basketball and softball teams
- Accepted for next years freshman class at Harvard, pre-med
- Wants to become an Orthopedic surgeon – (median salary of $408,000)
- With family contribution counted, she is facing an estimated $194,000 in debt upon graduation – OUCH!
The Business Model
- Amanda agrees to sell “equity” in the value of the first 15 years of salary she will earn post-grad, likely being employed as a surgeon.
- A private investor is matched with Amanda and pays InvestInMe $194,000 for 10% of her post graduate income for 15 years.
- InvestInMe disperses the $194,000 directly to Harvard as tuition bills are presented.
- On April 15th of each year following Amanda’s graduation, she submits a copy of her tax return along with a check to InvestInMe for 12% of the prior year’s gross income. (10% for investor, 2% management fee for InvestInMe)
- On April 30th of each year following Amanda’s graduation, InvestInMe pays the investor annual returns estimated to be $40,800 each year.
Benefits to Everyone
- Amanda graduates med school, following her dreams to become a surgeon, with $0 traditional debt.
- Private investor earns good returns ($40,800 annually X 15 years = $612,000) with relatively low risk, while helping a student achieve their goals.
- InvestInMe earns $8,160 per year for 15 years ($122,400) plus interest on the $194,000 (the float) before it was fully dispersed to Harvard over the 4+ years.
What Do You Think?
Could this business succeed? Post your feedback and questions below to join the discussion.
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Posted in Rip Apart My Idea, Uncategorized
12:32 am
CAS
Great Idea! Actually was thinking of this for Erica Leigh to help help launch her new music career. Money would help with studio time, equipment etc… Makes sense that an investor wants to put his/ her $ where there is the best chance of growth. Investing in a person and eliminating that stress, frees them to fully immerse themselves in their passion helping to assure success. Look forward to hear other feedback. Love the blog idea Jared.
4:05 pm
Shannan Smith
I think this is a great idea. This is an iteration of an idea I had myself. Like Kiva, helping people start businesses in other countries, I have been thinking of a way to give group loans to students here in the United States. There were several roadblocks I came to with my idea, and I do have questions/comments/thoughts about your InvestInMe idea:
1. Isn't there actually a high risk to the investor (versus the said low risk), depending on a student/recent grad to actually gross that amount of money after graduation? Students are fickle creatures, and the likelihood of them sticking to a career that they've identified right out of high school have to be low (I would have to get that number, but I suspect it isn't too high)
2. What types of students and careers is InvestInMe targeting? A very limited few (doctors, maybe lawyers)? With that in mind, how would the business expand over time? How much money would InvestInMe Inc. actually make?
3. Why wouldn't a student just take out a regular student loan? The risk (and the interest rates) for the student is lower if they take out a student loan. What happens if a student decides to change their major or career? Would that risk be built back into the investment contract, making the percentage of future income to pay back higher?
4. The investor doesn't get any returns until about 6 years from the time they invest (the length of undergrad and then graduate school)
5. Why would a student decide to pay a percentage of their high-grossing profession vs. paying back what it actually cost to go to school? I would have many reservations about paying away a percentage of my income, especially if I have hopes of making $408,000 in the future. I'd rather pay back what it cost to go to school over 2-10 years than to pay out 3 times what it cost me to go to school (over 15 years) to an investor.
7. Is what you're calling equity really equity or more of a bond?
It seems like the business model as it is benefits the investor more than the student.
…Just some thoughts from one entrepreneur to another (for entrepreneurship's sake)…