Live Debt Free

There is perhaps no more common American experience than having debt. US consumers currently have more than -$3 trillion- of debt outstanding and the average American does not expect to be debt free until age 53!* I helped start Upstart after hearing too many stories of people who were making choices based not on what was right for their futures, but on the crushing burden of their debt. As outstanding student debt has raced past -$1.2 trillion-(surpassing credit card debt and auto loans), it increasingly limits many graduates’ career choices. Faced with high, fixed monthly payments, recent graduates too often pursue the safest path to making those payments and not the best path to long-term success.

Upstart offers an alternative to debt that we believe is more fair and flexible. Instead of making fixed monthly payments, upstarts pay a small, fixed percentage of their income — trading in a known monthly payment of unknown affordability for an affordable payment of an unknown amount. Income Share Agreements like this are relatively new in the market, though economists like Milton Friedman have been discussing the merits of this model for decades. While the concept of income sharing is relatively straight-forward, some of the implications of moving from a traditional fixed interest rate loan to an ISA are more nuanced and not immediately apparent. Here are 3 ways we think income sharing is better than debt:

  1. Inherently affordable monthly payments. Traditional loans have fixed monthly payments, which can sometimes be unaffordable for borrowers. Whether they are taking time off of work to build new skills, temporarily between jobs, incur an unforeseen expense, or just making an entry level salary, fixed monthly payments are often unmanageable. Because payments under an ISA are a fixed percentage of income, they are always affordable.
  2. Protection for the downside, with a shared upside. In traditional loans, the borrower takes on most of the risk that if they earn less than expected the repayment becomes more burdensome than expected. With an ISA, that risk is shared with backers who accept a lower return when the upstart earns less than anticipated. Backers also share in the upside of potentially higher returns if the upstart earns more than expected.
  3. Backers invested in your success. Traditional lenders have no incentive to see a borrower succeed any more than is necessary to repay the loan. But with income share agreements, the incentives of upstarts and backers are aligned. When the backer helps the upstart succeed, both parties enjoy higher returns!

I believe that access to capital on fair and flexible terms is not just an individual good but a societal good. Unshackling people from inflexible debt and payments so they can take a risk, start a company or enhance their skills not only helps them personally — but helps to grow the economy as a whole. I hope that Upstart can help people make the best choices for their long-term success and live debt free.

-* Stats from- -CreditCards.com-