Innovation

College is becoming increasingly expensive and yet increasingly critical for a successful career. Low-to moderate-income students will often not have the same opportunities to fund their education as their peers of a higher socioeconomic level will enjoy. Some can have their college paid for by their families, and many will have to take on student loan debt. Traditionally, a student is assessed on their ability to repay according to their FICO scores, but low-income students may have poor credit scores—or none at all—through no fault of their own, and will be denied funding when they are just as capable as their peers. Funding U looks to change that by making loans available for students not based on their credit score, but based on their academic performance. The company recognizes that student borrowers who graduate from school are much more likely to repay their loans. Thus, by using an achievement-based data model, Funding U can predict a students’ ability to repay a loan upon their graduation.

Funding U's website homepage encouraging students to apply for loans.

Inspiration

Founder and CEO Jeannie Tarkenton shared how as a college student, she knew many capable individuals who could have completed college were it not for their financial circumstances. She expresses the key role of empathy in both the inspiration for the business idea and in her leadership. Empathy, after all, can be a great tool to identify opportunities. On top of that, data is their key differentiating factor. In a world with increasingly abundant and useful data, it seems to be an untapped resource for providing insight and assessing risk based on individuals. FICO, while very well-intentioned, uses a very limited history of data that overlooks so many essential components needed to make a good risk analysis, and as a result, lenders have to play on the safe side. Empathy highlighted the problem, and data analysis allowed Tarkenton and her team to bridge the gap between kindness and practicality.

Overall impact

Banks in the United States are required by the Community Reinvestment Act to reserve a certain amount of their assets for supporting low-and moderate-income families. Because they only lend using FICO scores, those families are often unable to receive loans, so banks cannot directly give that money to the families through their standard business practices. Funding U’s model is very attractive to banks because it allows the banks to invest that money somewhere where it will see a return. Thus, a large part of Funding U’s positive impact is the fact that they shift resources from big banks into the hands of students in need, in a manner that is beneficial for all parties involved. The hope is that the success of Funding U will inspire banks to start using metrics other than FICO score for assessing loan risk, allowing more people who are misrepresented by their FICO score to gain access to reasonable loans.

Business benefit

The nature of using alternative data sources such as graduation likelihood as a predictor for safe loans is self-sustaining. Since Funding U has determined that a borrower’s graduation marks a significant increase in their ability to repay loans, helping them attain that graduation with loans is very profitable. This means that the business model could be expanded to a larger scale, as banks see the model's profitability and put more funding toward it. The core of the innovation is the data. As long as that data continues to be available and data analysis continues to improve, the model will only improve and yield more value. Tarkenton hopes to expand the model to provide service beyond undergraduates and students at typical four-year institutions, but the idea itself—of using data as a risk-assessment alternative—has a lot of merits, and the potential application in other avenues also carries unforeseen potential.

Tarkenton herself has a very realistic view of leadership that contributes to a healthy culture within the company. She describes the recurring struggle between her own empathetic nature and the need to be firm in leadership. She wants to help everyone—that very empathy served as the inspiration for Funding U—but she also has to maintain her company’s culture, something she has managed successfully despite moving almost entirely online. Thankfully, the company mission is a strong attractor for people with both the talent and mindset of similar values that suit the company culture.

Social and environmental benefit

Funding U’s Model acts as a self-fulfilling prophecy. Lending towards an individual’s education enables them to earn that money back and pay off the debt. Access to education is proven to be a significant contributor to community development and growth. This data-based model circumvents biases and alleviates socioeconomic disparities that currently limit class mobility and stifle growth in underprivileged or underfunded communities. Access to education opens up career opportunities, improving the financial security of entire families. What’s more, the model is merit-based, so individuals can fully own their progress and no one can undermine their efforts in bettering their livelihoods. Beyond that, their children will have a much better opportunity to have their needs met, and the generational impact will have an exponentially positive impact on society. This business model doesn’t just level the playing field, it actively changes the world for the better, and business leaders should look to similar strategies for equitable decision-making; they might just find solutions that make for both better business and a better world.

Interview

Jeannie Tarkenton, Founder, CEO