FICO schmico. Credit scores have long proven an obstacle for students trying to get private loans. But now, there’s a new score in town specifically designed for students.
The Human Capital Score from People Capital doesn’t assess students based on their credit history (which is often non-existent), but rather on factors like their school, major, and GPA. Your Human Capital Score can hook you up with good loans from quality lenders to cover expenses that government funding and part-time jobs just aren’t covering.
I first heard about People Capital at Finovate, and wanted to get more information about this new student lending service. So I followed up with Alan Samuels, Chief Product Officer at People Capital, to get some specific questions answered. If you’re a high school, college, or graduate student (or a parent of a student), I think you’ll find what Alan has to say about this new lending option very interesting.
SpendOnLife: So Alan, People Capital helps students who often have little or no credit history by pairing them up with lenders. How do you do this? What’s required of students to sign up with you?
PeopleCapital: When you apply for a private student loan, lenders want to assess the risk they would take by making the loan to you, so they can know what amount they should lend and at what interest rates. The most common form of determining risk is the FICO score. FICO scores are based upon your credit history (how much money you’ve borrowed and repaid, whether you’ve made timely payments and for how long). Based on this, most students will fare poorly, as they do not have a long (or even medium) positive history of payments.
People Capital is revolutionizing student lending with a new credit risk methodology. Our Human Capital Score calculates future income potential by including variables such as GPA, standardized test scores, college, and major.
The idea behind the Human Capital Score (HCS) is that there is a way to assess the relative riskiness of students by looking in part at a different set of standardized and verifiable attributes than the traditional credit score. These attributes help predict students’ future income, and hence their ability to pay back loans. The HCS uses these to create a score (click on the thumbnail at right to see a sample).
SPL: If I’m a business major at Harvard, I assume my Human Capital Score would be sky-high. But what if I’m a History major from a small school that’s not ivy league? Are there loans out there for me?
PC: Your HCS is not solely based upon college and major. Other factors, such as achievements on standardized tests, GPA, as well as publically available information affect the results.
While the student borrowers on People Capital will run the gamut of Human Capital Scores, it is not the case that only the highest HCS scores will receive loans. The interest rate for any particular loan will be set by an auction methodology that processes different bids from different potential lenders. Depending on an individual lender’s risk-return profile, some will seek low risk/low return (i.e. High HCS) students, while others will seek higher risk/higher return (i.e. lower HCS) students. Our platform matches lenders with the students that fit their lending objectives.
SPL: How do the rates offered on People Capital compare to those offered by the federal government? Can I use the money for other expenses like rent, food, and books?
PC: The interest rate for any particular loan will be set by an auction methodology that processes different bids from different potential lenders. Some of our lenders are philanthropic or other benevolent organizations. As such, some loans will be lower than those offered by the federal government and some above.
People Capital strongly recommends that students apply for federal loans and all other sources of financial aid — including grants, scholarships, and Work-Study — before applying for private student loans. But even with funding from all those sources of capital, students will most likely require additional funding to meet the costs of attending college.
The loans originated on the People Capital platform can be used for generally acceptable educational expenses, such as tuition and fees, room and board, books, school supplies, and transportation.
SPL: Can graduate students sign up with People Capital as well?
SPL: Will I see my credit score if I sign up with People Capital?
PC: Yes. People Capital will provide a traditional credit score (i.e. your Vantage Score from Experian) as well as the People Capital Human Capital Score.
SPL: Unlike many federal loans, People Capital requires that student borrowers begin paying back the loan while they’re still in school. Why is this a good thing and how will it help students in the long run?
PC: It is an important part of the loan payment process that the student gets into the discipline of making regularly scheduled payments, however small. Lenders find it very attractive to see the positive actions of the borrower from an early stage. One of the biggest failures of traditional student loans is the period when the student is first expected to make a payment – when it may have been three or more years since they last had contact with the loan company. In addition, these monthly repayment streams allow People Capital to continuously enhance and improve the Human Capital Score credit analytic, and are reported to the credit bureaus, thereby enabling the student to build a traditional credit profile.
SPL: You’ve just launched an income projector that tells students what they are likely to earn if they graduate from a certain school with a certain degree. How does this work?
PC: Currently, we are providing free access to the Human Capital Score. In addition, we have just launched the Human Capital Score College Planning Tool for students (and college planning consultants) who want to use the Human Capital Score to compare multiple projected income scenarios based on colleges they are considering attending.
The Human Capital Score College Planning Tool is a web-based college scenario planner that is targeted for students who are planning to go to college and need help measuring the economic value of various schools they are considering. Namely, the tool can help students decide whether it is worth the money spent to go to one school as compared to another, based on the income potential from the academic choices they make.
The planning tool works when a user inputs key data about themselves (GPA, SAT scores, planned college major) and the various schools they are considering. The tool then calculates the data and presents a graph and chart documenting results of several scenarios (up to five maximum) of the user’s potential income 10 years after graduation, allowing the user to compare the results between colleges she is considering. This tool can also be used by college planning consultants and high school guidance counselors with a professional version available for their consulting needs.
If you are interested in learning more about People Capital and how they will help you to find quality loans to cover the cost of school, visit them at their website at People2Capital.com.