When the University of California at San Diego ran out of money earlier this year for Perkins Loans, a low-interest federal student loan, financial aid recipient Parisa Baharian found herself $1,900 poorer than she had expected.
But Baharian, a senior, soon found another way to pay her bills. She applied for a different kind of loan, this time from a private nonprofit called the Robertson Education Empowerment Foundation. Instead of paying interest -- 5 percent on the Perkins Loan -- she agreed to pay less than 1 percent of her future income for 15 years after graduation to cover the new loan.
"(The funding) freed a lot of my time to attain the level of achievement I always had," she said.
Now Baharian no longer has to work two part-time jobs to pay the rent. Instead, she's studying for the LSATs so she can apply to law school.
She's one of a dozen or so recipients of the Robertson Education Empowerment Foundation fund, which was created by Michael Robertson, founder of digital music powerhouse MP3.com and Lindows.com, a company that develops applications for the Linux operating system.
Robertson, a University of California at San Diego graduate, recently partnered with MyRichUncle to provide $3 million in financial aid for students attending his alma mater.
MyRichUncle is a company that brings students together with a network of investors who invest directly in their education.
Robertson's fund covers tuition, room and board, books, supplies and transportation expenses. Unlike conventional student loans, these loans don't require the recipient to pay interest.
"The cost of going to school keeps rising, but many key funding sources aren't keeping pace," Robertson said. "This (program) gives students more freedom and flexibility in their career path."
Students can receive anywhere from $2,500 to $7,000 a year from the fund. In return they are required to pay 1 to 3 percent of their future income back to the nonprofit for a 10- or 15-year period. At the end of the fixed period, a student's obligation is over regardless of the amount they still owe.
The money that students pay back is reinvested into the program to create more funding for future generations of students.
Since the program started last September, it has generated considerable interest among students whose parents "don't make enough to foot the bill but are looking for ways to fund their experience," Robertson said.
However, some students are wary about committing to 10 to 15 years of payments after they graduate. Baharian noted that she could be over 40 years old by the time she graduates from law school and her payment obligation is over.
"It's a tad risky," she said. "But my short-term needs outweighed my long-term interest. In the end, it allows you greater flexibility to study and achieve what you need in college. It frees up my future so I can study and not be constrained by financial means."
Advocates say that education investments like the ones that Robertson's foundation is making can also alleviate pressure on universities whose endowments are hindered by federal and state budget cuts. With these contracts, universities can devote more funds to improving facilities, faculty and research programs instead of straining to sustain enrollment, said MyRichUncle co-founder Vishal Garg.
"This allows alumni to target specifically students. Alumni have the capability to fully monitor how their money is being dispersed. They see the value of the money that's being given away."
A recent report (PDF) by the libertarian Cato Institute describes the benefits of what's known as "human capital contracts," where a student receives funding in exchange for a percentage of his or her income during a fixed period of time.
The report said such arrangements "have the potential to increase the amount of funding available for students and reduce the cost of education financing."
Project directors hope the venture spawns similar ventures at campuses across the country. MyRichUncle is currently negotiating with four universities to offer similar alumni giving programs.
"Universities see this as a very, very powerful tool," Garg said.
"A lot of universities that are providing top-quality education are reaching out to alumni," MyRichUncle co-founder Raza Khan agreed. "The need is tremendous."
