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Biden’s Relief Plan Stalls As Student Debt Still Looms — Can Hedonova’s Alternative To Loans Help Both Borrowers And Lenders?

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America could be in the grips of a massive debt crisis.

Student debt has surpassed the GDP of Canada. There are currently 45 million borrowers owing an average of close to $30,000 and a collective $1.7 trillion. Much of the debt is owned by institutions like SLM Corp. SLM or SoFi Technologies Inc. SOFI.

This debt can place a large burden on many borrowers, especially in times of economic struggle. Recent graduates that find themselves unable to land a job or those who do are settling for one that underpays can be hamstrung by high monthly payments. Some find the burden too high and end up falling behind. There are currently 5.1 million borrowers in default.

Although many federal student loans have some built-in protections that help borrowers pay based on their income, these protections are often not offered by private lenders. Just under 8% of total debt is issued by private lenders. The loans may have higher interest rates and fixed monthly payments that can lead to default if the borrower encounters employment issues or other financial difficulties.

Income-sharing agreements (ISAs) are reportedly becoming a popular alternative to traditional debt. Under these agreements, students take a capital investment in return for a percentage of their future earnings. The repayment is usually capped at either a fixed number or a ratio of the money invested, such as twice the initial investment.

This can be attractive to many students because the agreement may offer flexibility and safety that traditional loans do not. If the student loses their job, takes a large pay cut, decides to go back to school or wants to backpack around Europe for a year, they do not have to worry about a fixed monthly payment. Their payments scale directly with their income all the way to $0 when they are not working.

On the other side of the agreement, some ISAs have proven to be great investments. The alternative investment fund Hedonova says it has made a yearly return of 14% from its ISAs. The firm targets students with great promise at elite universities who are working toward high-earning degrees like computer science. The top 10% of Ivy League students earn about $200,000 a year 10 years after they start school versus $70,000 for non-Ivy League schools.

The fund believes that ISAs are mutually beneficial, helping students avoid difficult loans and offering high-yield and safe returns for the fund — Hedonova’s ISAs have only a 2.84% default rate compared to 7.8% for student loans.

If you are interested in learning more, check out https://www.hedonova.io/.

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.

Photo by Konstantin Evdokimov on Unsplash

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