Dave Girouard, CEO and co-founder at Upstart.
Getting a college degree pays enormous dividends, and not just in career earnings. 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 may also help you get a loan, or a cheaper one.
Girouard is the CEO and co-founder of Upstart, a technology-based risk assessment and analytics company that banks use to issue loans. He calls it a “more modern, more sophisticated risk engine that works at a higher level” to “create a more accurate credit decision.”
As a former employee at Apple and Google, that approach made sense to Girouard and his team. “I’ve been in Silicon Valley a long time,” he said. “And wanted to ask whether modern data science can be deployed with positive consumer outcomes, because the way credit works now, with FICO scores, is quite dated.”
When they started out, “We were looking for signals beyond those available in a credit file or in a credit score,” Girouard said. “Thinking of someone in their 20s, without 20 years of credit experience, asking is there other information out there that might supplement what we know credit-wise and give us more confidence in these decisions,” he said.
Turns out, a college education was one of those data points that gave lenders confidence. And that’s what makes Upstart interesting to those who care about college outcomes. It’s more complicated than this, but, in general, a college degree, in what and from where, can make someone a better loan candidate.
Upstart considers way, way more than education in making loan assessments, naturally. But, Girouard says, “it’s definitely part of our model” – a model that crunches in excess of 1,500 data points. As such, it’s impossible to say how significant a factor college is to the final outcome but, he says, “It’s definitely predictive, which is not surprising.”
“What they study, where they went to school is intuitively related to salary, what they earn for how long,” Girouard says. “There’s a lot of data on the value of education, people with higher degrees experience unemployment less, for example. And there are historic studies that prove out the value of education,” he said.
But, Girouard is quick to note, their efforts aren’t some squishy perk for Ivy League elites. “We’re not a boat race to Harvard,” he said. Fewer than 1% of their loans are made to graduate of “elite” providers, according to Girouard. “Our model recognizes solid degrees, two year degrees. The model cares not about prestige, it cares about economic outcomes,” he said.
And there are studies and economic outcomes aplenty. According to one recent report from the Georgetown University Center on Education and the Workforce, over 40 years, the median college graduate can expect to earn nearly three-quarters of a million dollars more than the cost of their degree.
Considering education in a lending risk engine is significant for education in that it’s another strong signal that private markets recognize the real economic value in a college education.
From a business view, the Upstart approach of broadening the data, including education, is probably paying off too. “We have much higher approval rates and lower loss rates,” Girouard said. Half a million loans later, he may be on to something.
Business aside, it’s those approval rates that may be most important. “Some people,” Girouard said, “earn great credit by paying back over 20 years, others may earn it through the effort to educate themselves and get a degree through a degree program.” Education, he said, “seems to fill in blanks enough and net, net, tends to result in higher approval rates.”
That’s a big deal. Considering new and significant factors in credit can extend loans to people who may have been locked out of the credit marketplace in the past or can now get credit at a lower cost – paying off credit cards or student loans or starting a business. That’s good for everyone because in many ways it can be easier to get a college degree than a quality loan. It’s good that getting one can now help you get the other.
Moreover, providing more incentives for students to go to school and persist to graduation, more rewards for crossing the finish line, is unquestionably beneficial. Repeating as often as possible that college pays is important too. It does. And, it seems, college pays in more ways every day.