Some business people offer a helping hand to college students by paying for their education.

College Students Get a Hand From Investors

Try a new kind of creative finance to pay for your education.

Some business people offer a helping hand to college students by paying for their education.

Some business people offer a helping hand to college students by paying for their education.

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To pay tuition, students sell all kinds of things, from lattes at Starbucks to their own bodies (for medical trials). But Alex Jasiulek has sold—or mortgaged—something new: the 10 years of his life after graduation.

Through junior year, Jasiulek, a Columbia University senior, had received $19,000 from a company called Lumni and agreed to pay about 3.7 percent of the salary he earns—no matter how high it goes—for a decade after graduation. If he doesn't have a job, or if he's earning less than 200 percent of the poverty line, he doesn't pay anything, temporarily. The payback percentage varies by perceived earning potential and size of the award, but the term is always 120 working months.

"You hear these horror stories about people who are 50" and still paying back their student loans, says Jasiulek, who has about $20,000 in Stafford loans and expects to get more from Lumni. "That's not going to happen here."

Lumni (a combo of "lumen," for light, and "alumni") is one of a handful of companies springing up to offer "gap" financing, or a hand with the $5,000 to $7,000 per year the Department of Education estimates most students still need after financial aid.

[Learn about changes to student loans for 2012.]

"That can be the difference between attending and not attending," says Noga Leviner, a board member and former CEO of San Francisco-based Lumni USA. The company was founded in Chile in 2002 and has been operating in the States since 2009.

Traditional banks decide which students are risky investments based on their family finances; Lumni, more interested in employability, looks at grades and SAT scores. Every candidate is interviewed to tease out qualities such as "ability to set long-term goals and resilience," Leviner says. The goal is to build a pool of students (a portfolio, of sorts) that will allow the firm's institutional and individual investors to get an attractive return over time.

In the short term, Leviner allows, "investors have to take a leap of faith" since there's no U.S. track record yet. In Latin America, the company has reported returns averaging 7 to 11 percent.

Another company, SoFi, is calling on alumni to invest in current students via university-specific funds that offer loans from $5,000 to cost of attendance. Funds are available at a 6.24 percent fixed rate if you make payments while in school (higher than the 3.4 percent subsidized Stafford loan but lower than the 6.8 percent current rate on unsubsidized Staffords; private loans are often higher, with variable rates) and the rate can drop to 5.99 percent after graduation if you sign up for automatic payments.

[Learn more about the benefits of federal student loans.]

The company hopes alumni will have an added incentive to offer mentorship or help with a job search (the "social" part of SoFi, which stands for social finance).

SoFi started at Stanford's Graduate School of Business, which the cofounders attended. This fall, it's available to undergrads at 45 universities, including several Ivies, and plans are to add more soon.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.