This section of FinAid provides information about student sponsorships, where a third party provides the student with money to help pay for their education.

Sponsorships are much more common in Europe, where private benefactors sponsor students from the local community. In the United States sponsorships are much less common. International students talk about "finding a sponsor" while US students talk about "finding a scholarship".

However, an innovative company called iempower has launched a form of sponsorship called "Education Investments" through their education finance division, MyRichUncle in 2000. Another company called College Degree Fund launched in 2008 to facilitate more traditional "micro" sponsorships. Both of these are for-profit companies.

Micro-Sponsorships (CollegeDegreeFund.com)

CollegeDegreeFund.com is a for-profit business that facilitates college sponsorships. Students create free listings on the site to tell their story and their need for funding. Sponsors contribute money in amounts as low as $5. The students can withdraw funds only after the company verifies enrollment through the National Student Clearinghouse.

Contributions are not tax deductible for several reasons. First, CollegeDegreeFund.com is a for-profit business. But even if they were not a for-profit company, the contributions would still not be tax deductible, as contributions on behalf of a specific individual are generally not tax-deductible.

CollegeDegreeFund.com earns money from fees charges on contributions and withdrawals. There is a 5% processing fee per contribution to cover credit card and Paypal fees and other costs, and a $5 processing fee per withdrawal.

CollegeDegreeFund was founded on March 27, 2008.

Education Investments (MyRichUncle)

In the MyRichUncle model, private investors provide funding to help students pay for their college education, in exchange for a fixed percentage of their annual income for a fixed number of years after graduation. For example, a student might receive $10,000 in funding in exchange for 2% of the student's income for ten years after graduation. (The actual percentage depends on the student's application.) In essence, these benefactors are investing in the student's future potential.

To apply, the student completes a detailed questionnaire about his or her educational background, intended academic major, work experience, and colleges. MyRichUncle uses sophisticated statistical models to determine the income percentage they will require in exchange for each $1,000 of financial support. Typical payback rates range from 0.1% to 0.3% per year per $1,000 in funding. MyRichUncle also receives a fee of 2.5%, which is deducted by the investor from the amount of funding received by the student.

MyRichUncle is an interesting alternative to education loans, especially for students who fear debt or are concerned about their ability to repay student loans in a tight job market. Since the income percentage is a fixed percentage of income, students find it easier to plan for their financial future. In essence, the investor is assuming the risk that the student will be able to find a good job, providing the student with peace of mind in addition to funding. The MyRichUncle model is most appropriate for students who are pursuing business, technology, finance and professional degrees. Since the payment obligation is a fixed percentage of income, the payments automatically adjust during low-income periods.

It is difficult to compare MyRichUncle with student loans, because the student is under no obligation to repay the original investment and does not pay interest on the principal. Instead, the student pays a fixed percentage of their post-graduation income for ten years. Once the ten year period is up, the student is under no further obligation, even if the amount repaid is less than the original investment. However, using reasonable assumptions about a student's earning potential, the cost of the MyRichUncle funding appears to be somewhere in between the cost of federal education loans and private alternative education loans. Cost is defined as the difference between money paid by the student and money received by the student on a net present value basis. This means that MyRichUncle is competitive with private alternative education loans. Note that private loans often require a parent to co-sign the obligation, while MyRichUncle does not. MyRichUncle also seems to be in the same ballpark costwise as the income contingent repayment provision of federal students loans, if one assumes the historical average Stafford loan interest rate.

Not all students who apply will receive funding.

MyRichUncle also offers private education loans that do not require a cosigner.

Patents

The following patents relate to this type of human capital investment:

• US Patent 5,809,484, Method and apparatus for funding education by acquiring shares of students' future earnings, invented by Anthony J. Mottola, Julius Cherny, and Roy C. Chapman, Human Capital Resources, Inc., issued September 15, 1998.

• US Patent 5,745,885, Data storage medium for funding education by acquiring shares of students' future earnings, invented by Anthony J. Mottola, Julius Cherny, and Roy C. Chapman, Human Capital Resources, Inc., issued April 28, 1998.

• US Patent Application 20020133445, Method and apparatus for an online personal funding marketplace, invented by Samuel Wharton Lessin, filed August 15, 2001.