College Credit for Life?


Good Morning,

If you have been paying attention to the markets, this has been a crazy week. Volatility picked up, and market swings were apparent throughout the week. While this week has been hectic, some new information about lending standards made waves during the latter part of the week. The Wall Street Journal and MarketWatch both reported about alternative data being utilized within the credit approval process. Pertinent information that worth noting from these articles were:

  1. Companies (such as Upstart) are incorporating the level of education into the credit approval process
  2. Other companies have considered using data based on the school attended
  3. Student loan delinquency rates for those that didn't finish college are four times higher than those that did

Utilizing alternative data outside of traditional metrics can add additional light on the borrower, but this methodology has the same faults as the current method, which is it lacks context. There are concerns that it will exclude those who are already unable to access credit and this method will only exacerbate the problem. On the other hand, the usage of alternative data can lump higher risk individuals into "safer" group based upon factors which are beyond their locus of control.  Based upon the current parameters being discussed it is hard to determine if education is a viable way to access credit risk.

As I was reading through the articles, I couldn't help to think about the line, "That major that you majored in don't make no money, but you can't drop out cause your parents will look at you funny." If lenders incorporate school data into credit algorithms what is the difference between a person with a degree from USC in Social Work, a person degree in business from Florida A&M or a college dropout from Harvard?

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