These Wharton startup founders want to provide an alternative to student loans

2017 Wharton graduate Zach Pelka and 2016 Wharton graduate Connor Swofford are making a splash in the education finance space with their new startup, Paytronage.  

The fintech startup, launched on Feb. 15, provides an alternative product to student loans by creating a marketplace in which students interested in taking out Income Share Agreements are connected with lenders. Pelka described Paytronage as “Shark Tank for students' future income.”

These lenders provide upfront capital in exchange for a set percentage of the student’s future income over a fixed number of years. The goal is to provide students with flexibility and affordable payments post graduation in order to alleviate traditional debt burdens.

As CEO of Paytronage, Pelka focuses on fundraising, finance, accounting, and financial structure. Co-founder Swofford is the company’s COO.

Pelka first had the idea for a student loan alternative during an internship in growth equity venture capital his sophomore year. While learning about investment in major tech companies such as Facebook and Spotify, he said he began to wonder, “Why is there not an investment vehicle to invest in the entrepreneur rather than the company?  Rather than investing in Paypal or Tesla, wouldn’t one rather have equity on Elon Musk himself?" Paytronage would give traditional capital sources the chance to invest in a student. 

When Pelka decided to begin building Paytronage last summer, he called Swofford, whom he met in a Management 100 class at Penn. They also partnered during a strategies and operations class in which they had to create a business plan and present to a venture capital firm to raise money.  

Penn students have been borrowing less since Penn implemented an “all-grant” policy in 2009. This provides students with a financial aid plan that includes grants and a work-study job, but no loans. Many students still take out loans because their family’s income is too high to qualify for aid, but not high enough to fully cover tuition.

According to Student Registration and Financial Services, 32 percent of Penn’s class of 2015 took on student loans to support their education. This group ended up with an average debt of $18,900 in federal and non-federal student loans.

Pelka and Swofford cold-emailed companies such as Commonbond, a successful startup company that came out of Penn and has originated over $1.5 billion in student loans. Commonbond co-founder Michael Taormina, who received a Wharton MBA in 2015, has since become one of the Paytronage advisors.  

Paytronage draws help not only from professionals and alumni, but also from Penn students. The startup currently has 18 undergraduate and graduate interns, with collectively over 50 students on campus, including students from a previous Management 100 class, working on its behalf.

Wharton and Engineering junior Mia Mansour, a member of the MGMT 100 team, said the main focus of the project is looking at force of customers. 

“To do that, we’re going to conduct and analyze primary and secondary research to see what are some patterns in customer preferences,” Mansour said. “We’re going to see what are the needs of different customer segments and then we’re going to try to gauge a level of awareness.”

Market surveys of the Penn community conducted this past semester showed that over 65 percent of students prefer an ISA to a student loan when comparing the two side by side. “This is a vehicle people want. There’s just a lack of knowledge and awareness of the product,” Pelka said. 

To promote awareness of Paytronage, a Thursday launch panel event at Penn featured alumni speakers as well as speakers from the student debt industry, including Taormina.  

The event included Paytronage's website reveal. “One of the really interesting elements of our website is you can plug in public data and see what your predicted income is going to be,” Pelka said. They will focus upcoming months on fine-tuning the algorithm. 

College freshman Adam Vukosa, who attended Thursday’s launch panel, said he was “shocked” that he had never heard about ISAs. “I actually thought the only way you could pay for college, if you could not afford it with what was given to you, was through a loan,” Vukosa said. “I didn’t know there was an alternative.” 

Vukosa said he found Paytronage’s student-loan alternative “very efficient” and would definitely consider using Paytronage. 

Other students have more reservations about the student-loan alternative. College freshman Cullan Gilroy said that although Paytronage sounds like an interesting idea, he could not see himself using it. 

“If I’m taking small loans from the government and then have to pay interest once I graduate, that just makes more sense than giving a portion of my future salary when I don’t even know what my future salary would be,” Gilroy said. 

Gilroy added that he does, however, see why Paytronage may be an appealing option for students taking out larger loans.