As every parent knows, children are expensive – modelling released in 2013 from The University of Canberra and AMP found that raising two children to 18 years of age on a ‘middle income’ in Australia costs $812,000. A lower income family will spend around $474,000, while a family on a higher income will spend $1.09 million.
Much of these costs go towards education. For families that choose to send their children to private schools, Sydney startup Edstart has come up with a solution. Essentially, Edstart allows parents to receive a loan for their child’s school fees, which they can pay back over a period of 1o years or more.
Cofounder Jack Stevens said the idea came from reflecting on both his time in corporate finance and on the work of his parents, both retired school teachers, and the value of education.
“I was getting very frustrated with the state of the finance sector as a whole and seeing massive opportunity for improvement, particularly improvement in the efficiencies of the system and technology as a way to unlock that. With this we’re unlocking the power of finance, but applying it to a really interesting investment, which is education,” he said.
The platform works by having a user give some back details about themselves, such as how many kids they have, what age they are, what schools their children attend, and how much the school fees are. Edstart then provides an instant forecast on future education costs, taking on the costs of the rest of the children’s’ lives at school.
In its current pilot phase, the platform provides a financing estimate for the payment of the remainder of 2016 school fees and the period over which they can be repaid; coming soon in version two will be a broader financing package for all the future years of schooling of the children. In this version one of the platform lending is capped at $50,000, with no exact cap in sight for version two.
Stevens and cofounder Jonas Hallerby began work on the platform in the second half of 2015, with much of the time spent on market research and development before Edstart was accepted into this year’s H2 Ventures fintech accelerator cohort, which finished up last month.
“You can’t release something, when you’re playing with people’s money, that is not top notch. At the same time you’re a start up and you’ve got limited resources, limited money, limited staff, and that makes fintech a particular challenge. We’ve learnt that lesson, and it’s really tough to build something new in this space without the resources of a financial institution behind you. So that’s what the accelerator’s been great for, they obviously understand all of those components and that’s been super valuable for us,” Stevens said.
With seed funding from the accelerator behind it, Edstart has also partnered with Ratesetter to provide the capital for its loans, allowing it to launch much faster – and more cheaply – than it would otherwise have been able to do if developing its own entire lending platform.
Still, much of the assessment criteria is the same as what the other lenders look at; apart from future projections for ongoing costs of children still at school, Edstart looks at factors including the individual’s credit history, employment characteristics, level of income, assets, and liability, and other financing commitments.
The startup’s main target isn’t parents with children attending the likes of Knox or Sydney Grammar, the elite schools charging upwards of $30,000 a year in tuition. While Edstart can handle those, Stevens said, the “sweet spot” is the mid-tier independent schools, where fees range from around $8,000-$20,000 per year.
“It’s really about those families that are in an expensive phase in their lives, so they’ve still got mortgage payments, maybe some investment properties as well, and then they’ve got two or three kids as well going to private school, which all stacks up,” Stevens said.
“What we say to parents is, if you want to make an investment in a car or a house or anything else there are great financing products for that, but when you want to make an investment in your kids and send them to a private school that’s a big cost as well but there’s really no financing solution, so that’s something we’re trying to solve with this model.”
The platform can be used independently of schools, though Stevens said Edstart is currently looking to build relationships with a number of schools to launch partnerships with next year; a partnership will mean schools will make Edstart known and available to parents as an alternative payment option.
Since launching the pilot in early July, Stevens said around 250 people have completed an estimate online, with applications representing a diverse range of schools. Looking ahead, Edstart is focused on cementing partnerships, with a focus for now on NSW.
Image: Jonas Hallerby and Jack Stevens. Source: Supplied.