Obtain a university degree pays huge dividends, and not just in career income. Colleges are important social sorters, provide valuable peer networks, and are invaluable maturity accelerators. And now, if Dave Girouard can find you, a college degree can also help you get a loan, or a cheaper loan.
Girouard is the CEO and co-founder of Reached, a technology-based risk assessment and analysis company that banks use to issue loans. He calls it “a more modern, more sophisticated risk engine that operates at a higher level” to “create a more accurate credit decision”.
As a former employee of Apple and Google, this approach made sense to Girouard and his team. “I’ve been in Silicon Valley for a long time,” he said. “And I wanted to ask if modern data science can be deployed with positive results for consumers, because the way credit works now, with FICO scores, is pretty outdated.”
When they first started, “we were looking for signals beyond those available in a credit report or in a credit rating,” Girouard said. “Thinking of someone in their twenties without 20 years of credit experience, ask yourself if there is any other information that could complement what we know about credit and give us more confidence in those decisions “, did he declare.
It turns out that a college education was one of those data points that gave lenders confidence. And that’s what makes Upstart interesting for those who care about academic results. It’s more complicated than that, but in general a college degree, in what and from where, can make someone a better candidate for a loan.
Upstart considers much more than education in loan appraisal, of course. But, says Girouard, “it’s definitely part of our model,” a model that processes over 1,500 data points. As such, it’s impossible to say how much of a factor college is to the end result, but, he says, “it’s definitely predictive, which isn’t surprising.”
“What they study, where they went to school is intuitively linked to salary, to what they earn for how long,” says Girouard. “There is a lot of data on the value of education, people with higher degrees experience less unemployment, for example. And there are historical studies that prove the value of education, ”he said.
But, Girouard hastens to note, their efforts are not a spongy advantage for the elites of the Ivy League. “We are not a boat race to Harvard,” he said. Less than 1% of their loans are granted to graduates of “elite” providers, according to Girouard. “Our model recognizes solid degrees, two-year degrees. The model doesn’t care about prestige, it cares about economic results, ”he said.
And there are many studies and economic results. According to a recent report from Georgetown University Center on Education and the Workforce, over 40 years, the average college graduate can expect to earn nearly three-quarters of a million dollars more than the cost of their degree.
Considering education as a loan risk driver is important for education in this this is another strong signal that private markets recognize the real economic value of a college education.
From a business perspective, the Upstart approach of expanding data, including education, is probably also paying off. “We have much higher approval rates and lower loss rates,” Girouard said. Half a million loans later, maybe he’s on to something.
Outside of business, approval rates can be the most important. “Some people,” Girouard said, “earn great credit by paying back over 20 years, others can earn it by making the effort to educate themselves and get a degree through a program leading to A degree. Education, he said, “seems to fill in enough blanks and crisp, crisp, tends to result in higher approval rates.”
It’s a big problem. Taking into account new and important factors in credit can grant loans to people who may have been excluded from the credit market in the past or who can now obtain credit at lower cost, by paying off credit cards or student loans or by starting a business. This is good for everyone because in many ways it can be easier to get a college degree than a quality loan. It’s good that one can now help you get the other.
In addition, offering more incentives for students to go to school and persevere until graduation, more rewards for crossing the finish line, is undoubtedly beneficial. It is also important to rehearse as often as possible as the college pays. It does. And, it seems, the college is paying more and more ways every day.