Home CompaniesB2C Funding University Disrupts the Student Loan Industry

Funding University Disrupts the Student Loan Industry

by Muriel Vega

Funding University is looking to fill the gap between passionate people and the funds they need to earn the education they want. Founded in 2015, FundingU offers undergraduate students, without co-signers, merit-based loans with interest rates of 5 to 9 percent with their 4-3-2-1-done auto rate-adjusting loan product.

“We want to reward students who stay on track and graduate on time. Graduating on time is so vital to reducing a students overall debt burden,” says Jeannie Tarkenton, founder and CEO of the ATDC Accelerate portfolio company.

In May, Funding U received over 800 applicants from 48 states after a soft launch. The Georgia pilot program received 119 Georgia students’ transcripts to pre-qualify. Then, their algorithm, SMaRT, identifies low risk borrowers by assessing the student’s academic performance and earnings potential, including a maximum 15 percent projected post-grad debt to income ratio. Out of those, 20 college students receive funding from Funding U.

FU FINAL CELEBRATION GIFTheir latest $1 million seed round was backed by Amazon CEO Jeff Bezos’ personal investment company Bezos Expeditions. Next year, Tarkenton and her team hope to go nationwide after raising $7-15M Series A funds.

In the end, Tarkenton aims to be part of the solution, not the problem, as the cost of college has risen 900% in the last thirty years and help those students from falling into the $1.2 trillion in student debt that is currently plaguing the U.S. Here, she talks about how FundingU differs from banks, why she won’t just give out to money to just anyone, and advice to incoming college students.

How did you come up with the idea for Funding University?

It was founded in 2015 and we just did our first batch of loans this past summer into this school year. The idea came in the 1990’s when I was in college, and one of my roommates needed an emergency last gap amount of money and she was not in a position to get it from her parents. She was in a position to have a loan, but she was not in a position to have a cosigner for a loan. She had no one with credit who could cosign. That problem ended up being solved very locally by some alumni of our school. That was sort of the kernel of the idea, which is actually something that a couple years ago I thought was an original idea.

We went into market, we had a little bit of money to lend people. We tried to raise it from local people in Atlanta. We were successful in raising a couple hundred thousand, though the demand we got was ten million.

We did our first run which was great. We lent to about twenty students at about nine schools. All Georgia residents, but not all Georgia colleges. The majority of the portfolio are juniors and seniors because we’re trying to assess the likelihood of graduation. It’s like running a marathon, if you have one more mile you’re more likely to finish it than if you have 26.

jeannie-funding-uHow do you differ from a regular bank?

Typically, if you walked into a bank, I don’t know if you’ve had this experience, but if you need a student loan, you need to have your own credit history or have a cosigner, which many young people don’t have.

We are a non-bank lender and can lend based on other underwriting criteria specifically, will you graduate’ and ‘what is your broad earnings based on your major’ and ‘what’s your career path?’ The school you go to factors into that a little bit. And for your current debt, will it commensurate with your likely earnings? In other words, if you’re a teacher and your earnings are likely to be within a certain range, is your debt in a rate that’s manageable?

We are discerning students who are going to graduate, who are going to be employed, and who are taking on the right amount of debt as compared to out sized debt.

What’s your current funding situation?

The initial investment was from Bezos Expeditions that came in March 2015 when we incorporated, so that kicked off the round. We did a rolling raise all the way through this past June when we raised a million dollars on June 30. That money has been used to build the algorithm to which we underwrite. A lot of our resources were put into about two years of building to your point about the risk. Building the algorithm that statistically and stably can predict a student from their transcripts and other activities that they will graduate. It goes along with the statistic of their likelihood of being employed and earning money.

We will continue with that investment as we raise more money. We have just three people in addition to our data team and a CTO. The money out of that made our first batch of loans and we’re still running on it for the next six months, but we are now actively using the outcomes of our Beta cohort and the success of that and the success with our pipeline to raise money for our next funding round.

What is the range of money that you guys are lending?

The average loan of this cohort is $10K, which may end up being our average. The average private student loan nationally is about $7,500, but ours in this cohort was ten. It seems we’re going to be somewhere between $7,500 and $10K.

How will that change next year?

The company is raising Series A funding that will be used to make loans to many of the 800 students on its current waitlist, and to meet other nationwide demand for the 2017-2018 school year.

How as a CEO do you feel comfortable taking on that risk, and how do you deal with it?

I feel like it’s the role of disruptive companies to go out and to walk the walk that they believe the one thing that other people don’t around them believe.

If everyone believed this, this company would have existed twenty-five times, and it would be out and rolling. I believe these students will pay back, and I don’t believe it out of my own wish for it. It’s very much a business decision that there is a lot of historic data that shows very stably that students pay back their loans.

I guess I should feel more worried about it at night, but the things that I worry about are not that our students will not pay back their loans. There are many years of historic evidence that students do, that students want to, that students who are working hard towards career goals can pay back their loans particularly when they’re responsibly attached to how much money they make.

Do you have any advice for incoming students looking for more educational funding?

We could make money off of people, which unfortunately what a lot of these students have gotten into. We are hoping that if this company continues to grow, we can catch the problem before it starts. For example, you can only borrow $5K from us. It’s all about the debt ratio.

What we feel is that we are part of the answer instead of the problem. This is going to sound like tough love, but instead of taking on more debt, you may have to take a semester off. We will lend you $3K, but we won’t lend you $30K. This is a personal decision, but piling on debt over more debt puts you in a situation that is untenable when you graduate. We’re seeing ourselves as part of good credit education. We also are partnering with a few companies and adding a lot of credit education to our resources. At the end of the day, you shouldn’t take more than you can pay.

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