Tess Michaels saw a need for new ways to pay for college while a graduate student at Harvard University. She and her peers would talk about how higher education proved more of a risk to students than the schools. “Students pay up front and hope it’s worth it,” says Michaels, 26.
Michaels has turned that interest and anxiety into a startup to offer graduate students income share agreements—student loans paid back as a percent of future income rather than in fixed dollar payments. Her company, Stride Funding, has won over some investors as well.
Stride has closed a recent seed round of about $2.2 million from investors including Slow Ventures, GSV Ventures, Strada Education and Sinai Ventures.
Founded in 2018, Stride loans students money and promises they don’t have to pay anything if they earn less than $40,000 a year. The amount they pay back is capped at 2.5 times the borrowed amount. Michaels declined to say how many borrowers Stride has or how much money it manages. The company has five full-time and three part-time employees.
Stride offers about $25,000 per student in funding and can pay more if needed through a partnership with CommonBond. Potential borrowers sign up on Stride’s website, answer questions about their education program and interview with a Stride representative. If all goes well, they receive an income share agreement offer with terms based on borrowers’ requested amount, school and the industry they hope to work in.
Recently, income share agreements, or ISAs as they’re sometimes called, have attracted interest from colleges and have even proved a dominant business model for startup accelerator Y Combinator’s most recent batch of education businesses. Coding bootcamps like Lambda School use them, too.
To be fair, ISAs still face questions from regulators as a new kind of loan from private companies. And critics have questioned whether the model may be financially advantageous to every student.
The seed round will go toward marketing, business development and hiring, says Michaels, who previously worked on acquisitions with private equity firm Vista Equity Partners. For now, Stride is building partnerships with recruiters, resume services and others to further develop its mentorship and career guidance services.
In June, Stride, formerly known as AlmaPact, bought Base Capital. Brendan Florez, CEO and co-founder of St. Louis-based Base Capital, joined Stride as chief technology officer. Terms of the deal were not disclosed.
Michaels says the acquisition helped boost Stride’s predictive income models used to underwrite loans. Stride is not currently seeking other acquisitions, but it is interested in additional partnerships, she adds.
She says the company has focused on funding students in industries with predictable income streams such as technology and nursing to start. The seed round will also help Stride develop a networking component to its services that helps pair students with career advisers and offers services like resume help.