How does an entrepreneur innovate in today's student loan marketplace? One way is to offer a measure of safety in a time of uncertainty. Carlo Salerno and the cofounders of his firm are ready to bring a new product to market.
Describe your education and employment background.
I graduated from Eastern Michigan University in 1997 with a B.A. in Economics. Five years later I graduated from Penn State with a Ph.D. in higher education and a concentration in economics. After stints at the Center for Higher Education Policy Studies in the Netherlands and the U.S. Government Accountability Office, I became a cofounder of BridgeSpan with two other people in 2008.
What need is your firm going to meet with its SafeStart product?
We are removing the fear of borrowing from students and their families. Actually by alleviating two fears. The fear of a high price that mounts over four years. And the fear of defaulting on a student loan at some future time.
How do you remove those fears?
SafeStart is a private deferment solution that enables a borrower to delay repayment responsbilities until he or she is better able to afford them. We can show almost any college student that your income the day after graduation is rarely reflective of what your income will be for the rest of your life. And SafeStart can provide peace of mind.
Is SafeStart insurance, or is it something other than insurance?
It's not insurance. SafeStart is an interest-free line of credit issued in an amount up to 36 student loan payments that may be utilized over a five year draw window.
What will it cost, and who pays?
The one-time SafeStart cost is about $40 to $70 per $1,000 of loan principal. It can be purchased by the student borrower or a family member or another interested third party. The borrower must graduate. Then the line of credit can kick in whenever a borrower's monthly student loan payments exceed 10 percent of monthly gross income.
Is anything else included?
Yes. We provide financial literacy education while the student is in school. And we provide personalized debt counseling after he or she leaves school.
Who are your natural allies in the marketplace?
Initially, any participant in the Stafford loan program, because SafeStart is available in 2009-10 to Stafford borrowers. Students, schools, lenders, guarantors and even the U.S. Department of Education.
Do you have any competitors now?
Not at this time.
Is your firm licensed, and if so, where?
Because we are a consumer lender, we are subject to state lending laws. Our attorneys are qualifying our operations throughout the United States.
Are there disclosures necessary at the time of the transaction?
Yes indeed. Federal truth-in-lending rules apply. In addition, the state in which the school is located governs the transaction and additional required disclosures.
How will a college or university be affected if you are successful?
If their students participate, they can expect improved cohort default rates. We also think SafeStart will be instrumental in enabling more students to attend their first choice school.