Everyday Scientist

grad school microloans

March 25, 2009 at 2:19 pm | sam | grad life, open thread, stipends

Despite the fact that we are very expensive to our PIs, we graduate students receive a stipend that just barely pays for our living expenses. In fact, according to Stanford’s own estimate, our expenditures are a couple hundred dollars more than our annual income.

Coin Jar One result of this is that many of my fellow students live paycheck-to-paycheck, and do not have adequate savings to buffer against large expenses. This means that many students end up carrying a balance on their credit card, taking out a loan, or applying for another card to pay for unexpected peaks in spending (e.g. buying a plane ticket home, paying a rental deposit, or while waiting to be reimbursed for a conference). Having a small amount of interest-free borrowable money could help some students keep their heads above the water.

So, basically, I want to start a microcredit account for Stanford Chemistry grad students. This could be as simple as a checking account with a couple thousand dollars that could serve as a source of small, interest-free loans to students in need of some cash before their next paycheck or while they are waiting for reimbursement to clear.*

I envision a system in which individuals who contribute even a small amount to the account could withdraw a couple hundred dollars to pay for emergency expenses, then pay back the money in a month or so.

Here are some problems:

Will People Contribute to the Fund? If 25 people contribute $25 each, and 50 more contribute a dollar, that’s already approaching a grand. If there a few angel investors—maybe grad students who are married to people with real jobs—contribute a few hundred each, you could reach a few thousand dollars. That doesn’t mean that people will actually be interested in joining the cause, or risking their money. Even if the account were interest-bearing, a few percent of a couple thousand spread among many isn’t a big motivator.
Will People Borrow from the Fund? This is probably the biggest problem. Borrowing would probably mean contacting the person who holds the debit card, filling out a form, etc. That might be too much work for just for a few hundred bucks. I suspect this getting people to actually borrow would be the real problem with the idea.
Will Borrowers be Forced to Grovel? If one person is the official owner of the account, then borrowers would have to go to that person to get the debit card. That might feel like groveling. Or it might be embarrassing. And that’s assuming that the account owner is nice and responsible.
Should the Loans be Public or Secret? Making the loan amounts and borrowers “public”—even if only among the people who have contributed to the fund—might cause borrowers to feel embarrassed. Conversely, if the loans are kept secret, then there’s less encouragement to repay loans quickly and fully. A compromise might be to only announce names and amounts when repayments are late. That would encourage delinquent accounts to be repaid.
Will People Repay? I think this wouldn’t be a problem. Because the fund is community-sponsored, and because the funders and borrowers all know each other, and because the loans will be small and we do have incomes, I think that almost all the loans would be paid back in full. Peer pressure can be effective at encouraging repayments.
Other Logistics? This can be complicated. Do you have one responsible person open a checking account, or are there group accounts available? Google Spreadsheets and Forms, or even just Excel, could be useful for much of the logistics (contribution and loan amounts, repayment dates, etc.). What about when the owner graduates? They’d have to pass the account on to another student, which could be messy. How do you distribute interest and losses to the contributors?

Any suggestions?

UPDATE: Using PayPal might help a lot of the logistics, and even reduce the face-to-face groveling required to get money.

________________

* I don’t know how it works elsewhere, but grad students at Stanford are required to pay their own way to conferences and flights, then get reimbursed. The poor students are basically giving the rich University an interest-free loan while waiting for reimbursement to clear. For some reason, we can’t be preimbursed for our conference expenses. Usually, you are reimbursed before you have to pay your credit card bill, but it still is a stupid system that puts undue burden on the students. The microcredit account could serve as a low-bureaucracy alternative to the stupid reimbursement system when a student is very short on cash or has already maxed out their credit card.

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I’m not a grad student at Stanford but this is definitely a cool idea. It sounds great for when you need a few extra bucks to cover expenses that pop up at the wrong time. I may have missed it but I’m guessing the donors get their contributions back when they graduate? As for whether or not people would borrow, I think people would if it’s simple enough and gives them a way to avoid credit card balances or traditional loans.

Comment by Matt — March 25, 2009 #
yes, contributors would be able to get their money back (minus any losses, plus any interest).

Comment by sam — March 25, 2009 #
Great idea. I’m not sure what the dropout rate is at Stanford, but what about people who leave unexpectedly (with outstanding loans) and you never hear from again?

We had one or two people like that.

Comment by Will — March 25, 2009 #
Does Stanford or the chemistry department have a graduate students’ association? An emergency bursary program operated by an organization with official ties to the university would likely address many of these headaches associated with deciding who gets the cash and how it’s paid back.

Furthermore, our GSA offers travel awards that can cover expenses in advance, though this tops out at $800 per student over their whole degree.

Also, as a data point, our department (in Canada) will give reimbursements in advance of conferences if suitable documentation can be provided.

Comment by joel — March 25, 2009 #
It’s an interesting idea and would probably work if you had someone that pushed for it effectively (like you?). It might have some problems with continuity after the founder left, but that’s not a reason not to try it.

I also hate the reimbursement thing. Penn used to allow advances for estimated expenses so that I didn’t have to worry about it, but now they will only give you an “advance” on things you’ve already paid for such as plane tickets and even then only if it’s within one month of the conference date. Basically it’s not worth the hassle and I’m back to reimbursement land.

I spend more than 10% of my gross yearly income on work related travel. It bothers me that it’s assumed that I have that much credit just waiting to be used like this even if the expenses are ultimately reimbursed.

Comment by Andre — March 25, 2009 #
I’ve made 100+ microloans to different people using http://www.lendingclub.com if you guys want to do this just organize it through that venue.

Mitch

Comment by mitch — March 25, 2009 #
Interesting idea. A couple comments:

1) Try pleading with your bosses for a group or department credit card. Near the end of my time in grad school, we got a group credit card. We were very limited in what we could use it for, but we could use it to buy plane tickets for conferences. It took a little effort on our boss’s secretary’s part to convince the university to go for it, though.

2) You may want to look into setting up some sort of society or something. You’d have to check into the legality of using society funds like this, but that way the account could be in the society’s name and changing the person with signing authority would be simpler than if it was a personal account.

Comment by MRW — March 26, 2009 #
Great idea. Groveling shouldn’t occur. Give out loans in amount/interest/time-frame based on a person’s ability to pay (as shown by some generic rubric like income + credit history + debts). Anyone could contribute. Why not? And anyone could cash-out with 90 days notice or something. This might pose tax problems, and you’ll want to figure out how to set interest rates. This sort of thing might also be subject to regulation like any other loan agency. But I dunno.

Comment by jordan — March 26, 2009 #
I guess microcredit loans would be a good option if you only needed a couple of hundred or less once in a while.

But when I was in grad school, I qualified for subsidized federal loans. Is that not an option any more?

And at Stanford, I’ve heard that postdocs have student status, making them eligible for student loans too. Is that still the case?

Comment by PI — March 28, 2009 #
That sounds like an awesome idea. I’m at Northwestern and money works the same way, which is sort of ridiculous considering conferences are rather expensive. If it works out there at Stanford, lemme know and I’ll approach the staff to see if we can do something like that here.

Comment by boyie — March 30, 2009 #
You are letting a cohort of the public invest their money, they let lenders make a profit, this would be considered a modern security from the SEC perspective. You would need to do this through a SEC approved Peer to Peer microlender. The only one doing this in the US is http://www.lendingclub.com

Comment by mitch — March 30, 2009 #
i disagree. more accurately, it would be a group of friends loaning one person money, who then uses that money to loan to individuals. i think the contributors would have to give up ownership of their contributions (and trust the promise of the manager to pay them back someday).

but you make a great point, mitch, that there may be many legal barriers to consider.

Comment by sam — March 30, 2009 #
My school has an “emergency loan” option for grad students (in all departments.) You can loan up to $1000 once a year due to emergencies, interest free, and you have several months to pay it off. You sure a richy school like yours doesn’t have that? We’re a pretty far cry from Stanford and we do.

Comment by Chem — March 30, 2009 #
This is off topic but of major importance.

For the first time in 6 years *I didn’t get my Lab Snacks* with my Thorlabs order. There was plenty of room in the box (on a $1K order), so I wonder if they discontinued this good deed in light of the economy. Has anyone else noticed this?

Comment by Joel — March 31, 2009 #
what?!? now i am worried about the economy.

Comment by sam — March 31, 2009 #
I just got some Lab Snacks last week, but I’ve gotten packages without them before. It seems like a fairly random effect – no correlation with box size or item price that I can see. I’ve gotten at least one ~$1k order without snacks, but I got a snack box once on an order with a single LED.

Comment by MRW — April 2, 2009 #
Then you might be okay. But all lenders and borrowers will have to have residency within the same state or it will not fly at all with the SEC.

Comment by mitch — April 2, 2009 #
A recent story in Forbes about P2P lending:

http://www.forbes.com/2009/03/24/social-lending-credit-entrepreneurs-finance-credit.html

Comment by mitch — April 2, 2009 #
[…] With fees increasing and stipends not growing, it seems that now is a perfect time to add a safety net. […]

Pingback by Everyday Scientist » SCMF — April 13, 2009 #
I like it when people are thinking about of the box to solve a problem.

I may have a solution (for some) which is to fill out a FAFSA (assuming you are a US citizen). Take out the max amount of subsidized loan ~8500, pay the ~1% fee to your institution and put the remainder into ING Direct so in a ~9 months you have an interest free loan for the remainder of the time you are in graduate school + 6 months. This can be repeated over and over…

Comment by Sean — May 2, 2009 #

grad school microloans

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