Online Marketplace Offers an Alternative to Student Loans

With rising student-debt burdens and bleaker job prospects making headlines in recent years, young people are thinking twice about how to pay for a college education or launch their dream career. Enter Pave, an online platform that allows students and young professionals to market themselves to potential investors in hopes of gaining financial support, networking opportunities, and mentorship.

People who turn to the start-up company for money to go to college or start a career project—”prospects,” as Pave refers to them—create a profile on its Web site to pitch their stories to potential backers. In turn, prospects pledge to share a percentage of their income over a fixed amount of time.

Unlike other crowdfunding sites, Pave is not limited to a specific project, and unlike loan services, prospects have no obligation to repay the specific amount of money given to them.

In addition, prospects’ payments are always income-based, whereas loan payments usually stay the same, regardless of income. Additionally, if a prospect’s earnings fall below 150 percent of the poverty line, or if the prospect is a full-time student, he or she is not obligated to share earnings during that time.

Under this arrangement, if a prospect does well, the backer also benefits from that success. The reverse is also true: If the prospect does not fare well, the backer loses, too.

“We’re offering people an alternative source of funding, with the upside of tapping into some sort of mentorship, which can be incredibly compelling for both sides,” says Oren Bass, one of Pave’s founders and its chief operating officer.

About a year and a half ago, Mr. Bass and another founder, Sal Lahoud, who is Pave’s chief executive officer, began discussing person-to-person investment on a commercial scale. Since its launch, in December, Pave has received more than 1,000 inquiries from potential prospects, according to Mr. Bass.

“We saw a lot of wealth and experience in the financial world not being used in society,” Mr. Bass says. “By tapping into those resources that were almost lying dormant, we sought to connect people in a better way, with both a financial and social aspect.”

Before launching the Pave Web site, Mr. Bass spent a year studying potential hurdles and legal issues, such as developing a legally enforceable agreement between prospects and backers, and verifying prospects’ income levels, to avoid dishonest reporting of earnings. Mr. Bass solicited advice not only from lawyers but also from the U.S. Consumer Finance Protection Bureau and the Securities and Exchange Commission.

Mr. Bass says that while Pave is open to anyone, it is a natural fit for college students, who tend to have more ambition in starting their careers but also need to pay for their education.

Rather than seeking prospects in high-earning career paths, such as engineering or banking, Pave backers to date are often looking to connect with someone who has a good story, according to Mr. Bass.

“They like seeing something that displays passion and drive, in any sort of field,” he says.

Carlo Salerno, a former education economist and the company’s head of growth, says Pave also provides an opportunity for people in the private sector to invest in education.

When developing the concept for the company, Mr. Salerno and Pave’s co-founders discussed how money influences the decisions people make in life. Financial obligations often dictate whether a person chooses to pursue an education, a passionate interest, or a job to pay the bills. Pave gives prospects the opportunity to find a career fueled by passion, rather than a career that makes sense economically, Mr. Salerno says.

“This is a way to think about promoting financial access to education … and finding ways to help people help each other,” Mr. Salerno says.

Ben M. Levine, a 20-year-old junior at Pitzer College, says he plans to use the $3,000 he raised through Pave to help expand a small business he started last spring, KooChooFlee, which sells the Chilean treat cuchuflí.

As a child, Mr. Levine frequently traveled to the Chilean part of Patagonia, where his mother grew up, and was inspired to bring his favorite childhood snack to the United States. Mr. Levine gives half of his profits to charities working to preserve Patagonia, and will also be sharing 0.4 percent of his income with his two backers over the next 10 years.

Mr. Levine says he plans to pursue a career in the financial world following his graduation. He was primarily drawn to Pave, he says, because of the possibility of building relationships with his backers.

“The backing is where the true value actually lies,” Mr. Levine says. “There are smart, motivated people willing to help me with something. They may be people who haven’t been in the kitchen in some time, but they definitely know what it takes to start a successful business.”

For Clara I. Aranovich, a 27-year-old graduate of the University of Southern California, money from Pave will help her to pursue a filmmaking career.

Fifteen backers helped Ms. Aranovich raise $50,000, which she will use to incorporate a film-production company, upgrade her editing software, and hire someone to create a detailed budget for her first feature-length film. She has committed to sharing 5 percent of her income with backers over the next 10 years.

“Paying it forward seems to be the only thing that makes sense for me in this industry,” Ms. Aranovich says. “Why not conduct yourself generously?”

Mr. Bass says the next step for Pave is to focus efforts on improving the concept, and spreading the word.

“We are all driven by a passion for this project,” Mr. Bass says. “We are very much about allowing people to do what they want to do.”

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