Business innovator
Lumni, Inc.
Chile and Colombia
Would you invest in the ducation of a college student ifyou were able to earn a tidy return from his or her success?
Felipe Vergara and Miguel Palacios
are betting that a lot of people would.
Since 2006, the investment model created by their Miami-based company,
Lumni, Inc., has financed the college
educations of nearly 1,300 low-income
students in Chile, Colombia, Mexico,
and the United States.
The arrangement is simple. By purchasing shares in a Lumni fund, buyers can earn an average return of 7. 5
percent, according to Vergara, as students start to earn a salary and repay
their loans.
Lumni started in 2002 with a seed
project in Chile and later expanded to
Colombia. The idea was to establish
a “human capital investment fund”
to make traditional college loans to
qualified students. Vergara and Pala-
cios soon discovered that it could re-
duce both the risk to investors and
the burden to borrowers by allowing
students to pay back their loans as a
fixed percentage of their post-gradu-
ate salaries; the amount students are
required to pay never exceeds 15 per-
cent, and the term of the loan varies
with the borrower’s capacity to pay.
The so-called “portion-of-earnings”
arrangement helps ensure that repay-
ment does not become a financial bur-
den to graduates starting their careers.
According to the company, three
out of four qualified students in Latin
America will not earn a college degree.
Vergara, a graduate of the Wharton
School, and Palacios, a graduate of
the University of Virginia’s Darden
School of Business, are both Colom-
bian. Lumni, they believe, will give
needy students a chance for the same
top-grade higher education that they
enjoyed.
So far, Lumni has attracted more
than 100 private investors. They include high net-worth individuals,
foundations and non-profit organizations, as well as international
financial institutions such as the
Inter-American Development Bank.
Large international businesses, sensing an opportunity to demonstrate
good corporate citizenship, are also
attracted to the idea. In Colombia,
Lumni has partnered with SAB Miller
to increase access to college programs
for young people in rural areas and
to rehabilitate former combatants
through education. In Mexico, the
company has teamed up with Office Depot to finance education for
the disabled.
The structure of the program is
also innovative. Lumni has created
several funds of diversified pools
of students matched to investors’ financial and social goals. Lumni allows some students to repay less than
their original investment if they enter the workforce in a low-wage industry. For now the company relies
on a mix of investors and charitable
donors to replenish and increase its
loan pool, allowing it to fund a diverse group of students. Eventually,
say Lumni’s founders, the fund will
be self-sustaining.
Lumni improves the odds by being highly selective in its choice of
students. Fewer than 13 percent of
applicants are approved, and recipients are selected based on “integrity,
educational achievement and future potential in their chosen field
of study,” says Vergara. And like any
good investor, Lumni takes care to
protect its investment: the company
provides each student in its program
with a mentor—often a Lumni graduate. This stay-in-school approach has
been successful so far. Two percent
of students drop out of school, and
the default on repayments is only
The kids are alright: Felipe Vergara, co-founder of Lumni,
believes students are a good investment .
