After a long career on Wall Street, Emeka Oguh pursued his MBA and married a doctor. Together the couple accumulated more than $400,000 in student loans.
Now in debt, he and his wife were no longer investing in retirement accounts such as a 401(k) and realized there was no financial solution to analyze the best way to pay back their loans.
That led Oguh to found PeopleJoy.com, headquartered at 19th and Market Streets in Center City, to help people pay off their debt.
Similarly, Jeffrey Groeber, a Philly native and Haverford School graduate, now runs Leif.org, an educational start-up founded in 2016. Leif partners with such programming trade schools as Lambda, Thinkful and Modern Labor to create income share agreements (ISAs), which have students pay for their training from future earnings.
“A traditional student loan forces students to accept all of the downside risk of not being able to afford their monthly payments, under very uncertain outcomes,” Groeber said.
With an ISA, students agree to pay a percentage of income for a period of time, up to a clearly defined dollar amount, but only if they earn above a certain salary. Pennsylvania colleges and universities that have set up income share agreements include Lackawanna College and Messiah College. However, the contracts are complex, and come with caveats (see below).
Groeber also experienced the pain of paying down student debt.
“My mother was a teacher for 30 years at both St. Aloysius Academy and Penns Grove High School. My father was a local soccer coach and I attended Haverford School on academic scholarship, played varsity soccer at Penn, where I got an undergrad engineering degree, and an MBA from Wharton,” he said. He paid for the undergraduate degree through loans, and he paid out of pocket for Wharton.
In case you’ve missed the $1.5 trillion student loan crisis, here’s some local reality.
“The average student loan debt we see is over $100,000," said nonprofit credit counselor Liz Greenwood, who has helped people get out of debt for more than 40 years, while working for Clarifi, a Philadelphia-based credit counseling agency.
What’s the latest scourge she’s seen?
“I’ve had [credit counseling] clients with Parent Plus loans of over $400,000 after they’ve put several children through college.” That kind of debt wasn’t the case many years ago. Mostly, she helped debtors with credit card and mortgage loans.
“The price of college is so much higher now,” Greenwood said, citing her granddaughter’s annual tuition at Penn State, currently $36,000 for everything.
“How do they expect kids to pay those kinds of loans right out of college? And how can someone who’s 22 make enough money?” she added. Mistakes include deferring student loans while not understanding that the loan’s interest continues to pile on over the years.
PeopleJoy and Leif offer possible solutions.
Leif co-founder and CEO Groeber said most of its school partners are in computer programming, where the company claims good jobs are plentiful. However, that may involve a move to an expensive city such as San Francisco, New York or Seattle, where living costs are higher.
“We think there are a lot of different ways to fund education. Additional mainstream schools need to adopt some focus on outcomes or get left behind. It’s the early innings” for ISAs, Groeber said.
Leif.org also instituted a repayment caps for its grads: “If someone does really, really well, you don’t want them paying unlimited money on their income. So the student gets a great deal," he added.
One of Leif’s partner schools is Modern Labor, another start-up.
At Modern Labor, “we pay people to learn how to code, up to $2,000 a month for five months, and have them go through a curriculum to become a web developer. They work on our platform, like a job, and then if they learn the material, at the end, they’re able to do a full-stack web developer job. That earns about $65,000 median, sometimes lower depending on the city,” said co-founder Francis Larson.
Started this year, Modern Labor’s offer is this: After graduation, student trainees give Modern Labor 15 percent of their gross income for two years.
However, ISAs are serious loan contracts with heavy fine print, and require scrutiny. ISAs spell out various requirements, such as you must bank with an institute of their choosing, hand over all your tax returns, and allow your finances to be monitored. Also, your ISA contract can be sold, according to a sample Leif contract that runs 13 pages, and you must submit to arbitration in any disputes.
Congress is also considering pro-ISA legislation that could -- we stress could -- prevent grads from discharging ISA loans in bankruptcy, according to Julie Margetta Morgan, a Washington-based fellow at the Roosevelt Institute who studies education funding.
“There is a clear need to regulate income share agreements, but the existing federal bills prioritize investors’ welfare at the expense of students," she said. By exempting ISAs from bankruptcy law and state regulations, and by failing to outlaw exploitative terms, "proposed legislation puts students in danger of signing agreements that trap them in debt they cannot reasonably repay.”
“ISAs have the potential to make education more affordable, higher quality, and less risky for students," said Ethan Pollack, policy director at the Aspen Institute’s Future of Work Initiative. "But given that ISAs are a relatively new financial product, these need strong and clear regulations to ensure that students understand the terms and are protected from predatory agreements.”
What about the rest of graduates who have already amassed student debt?
That’s where PeopleJoy comes in, said founder Emeka Oguh. Out of 44 million student loan borrowers, half are already out of school.
“We’re focused on those people who are currently in repayment and looking for strategies to lower their monthly payment,” Oguh said.
Currently, college debt options include refinancing through outfits such as SoFi, CommonBond or a private bank such as PNC or Citizens Bank. That can help lower interest rates, but also grads give up certain rights that come with federal loans.
Then there are forgiveness programs: New Jersey just launched a STEM loan forgiveness program to any employee who got a degree in-state and works in STEM, or science and technology, engineering and math. The program offers student loan redemption in exchange for employees in STEM occupations for at least four years and up to eight years. After certification, the New Jersey Higher Education Student Assistance Authority (HESAA) will redeem up to $2,000 each year of program participants’ eligible student loan expenses, for up to four years, up to a maximum of $8,000.
“We built software to analyze your loans, let you know if you’re eligible, and what you need to do to get there and enroll you. We serve as an advocate” and charge fees based on the tiered levels of service, he said.
Oguh wouldn’t disclose exact pricing but said it’s “well below” the cost of hiring a financial adviser and is “a middle-class option." Typical student loan advisor services charge between $300 to $1,500, plus annual fees and don’t include implementation. PeopleJoy is on the lower end of the range and charges a fee only if it knows it can help borrowers find savings, he said.
According to terms on PeopleJoy’s website, charges can include loan processing, underwriting or funding fees, application fees, facilitating Student Debt Repayment Assistance and Emergency Savings Assistance services, and Financial Coaching service, PeopleJoy does not charge a fee for its comparison tool and pre-qualification services.
Oguh knows the struggle.
“Being an entrepreneur and having student debt is tough. Oftentimes you are putting everything you have in the business, so you don’t show income at the end of their year. You can’t refinance to a lower rate if you don’t show earned income,” he said.
“In my case, I had already refinanced to a floating interest rate private student loan before I quit my job and became a full time entrepreneur. That rate has since increased 50 percent. I would encourage anyone currently in the workforce, but is someday planning to become an entrepreneur and has student debt, to stick with federal loans and not to refinance,” he advised.