What’s the secret formula to helping students avoid being crushed by student loan debt after graduation? Ken Ruggiero, the CEO of Ascent Student Loans, thinks he and his team of data scientists may have discovered a solution—and it’s probably not what you think it is.
Here’s the very short answer in two parts:
- If you need a private student loan without a cosigner, but lack sufficient credit history and income, Ascent has an option based on your future earnings potential, and
- If your lender doesn’t pony up all the money that you ask for, that might be a tremendous gift.
Let’s dig into how the folks at Ascent came to these conclusions and then talk about how it might apply to current and future students who are shopping for student loans.
A compelling tale behind student loan statistics
Many people have asked “How did we get here?” in relation to the student loan crisis. The Ascent team took a novel approach to unraveling that question.
“We’re data scientists and statisticians and finance people,” Ruggiero says. “We wanted to examine the data to find out what kinds of outcomes students were seeing 10 to 15 years after graduation. We found that the average college graduate will eventually achieve a credit score of about 740—but again, that’s the average. There’s a pretty big range.”
However, when Ascent started digging into the numbers, they found something surprising: People who’d held private student loans without a cosigner had higher credit scores in the decade or so after graduation.
The question was why?
Ruggiero gained some insight into that when his own son started college four years ago. “I cosigned my son’s first-year loan. For four years, we each got bills from the student loan servicer every month—and we both threw them away every month because there was no payment due yet.”
Ruggiero points out that parents and students get into a pattern of not paying attention to the loan. Then, students often fail to realize when it’s time to start making payments, typically six months after graduation. “There’s so much confusion at the point of the repayment. There’s confusion over who owes the money. It’s like playing doubles tennis. Even if you have two highly skilled players, if the ball goes down the middle of the court, they’re both likely to miss.”
A loan built on a student’s potential
Understandably, most lenders require cosigners because they don't want to take on the risk of loaning directly to students with no credit history. But Ascent wanted to rethink that model. “We wanted to see what it would take to create a loan product that we could offer directly to students, without a cosigner,” Ruggiero says.
Statistical analysis revealed that the biggest predictor of whether someone could repay a loan or not was graduation. If Ascent could determine who was more likely to graduate, that would be an important factor in determining future credit worthiness.
The company began looking into data for things like graduation rates at different schools, outcomes for different majors, and starting salaries based on region.
Ascent was then able to use that information to build data models of future credit scores and debt-to-income ratios for potential applicants. That created the possibility of reviewing student loan applicants in the same way that banks might review mortgage or car-loan applicants.
The non-cosigned student loan was born.
Changing the conversation
The Ascent non-cosigned student loan evaluates applicants based on their projected futures, not their pasts.
“The thing we found is that majors matter,” Ruggiero says. “For example, if you’re going to school for liberal arts, your income potential doesn’t change much based on your school—and very few majors are worth $65,000 for four years. We don’t want to overburden our customers with debt that they’re going to struggle to pay back.”
So what happens when an applicant doesn’t get approved for the amount they requested?
“That’s when important conversations can happen,” Ruggiero says. Ascent requires all applicants to go through a 15-minute financial-wellness training module to learn how loans work—and what’s really involved in repayment. “The federal government has a requirement to explain how loans work when people graduate. That’s broken. We want to add the education in contextually while people are applying,” he adds.
“If a student applies for a $12,000 loan and only gets an $8,000, they can begin to ask questions. They can call the financial aid office and say ‘My future earning potential will not support the amount you’re charging me,’” Ruggiero points out. “Eventually, this can help change the way that colleges determine tuition.”
But in the meantime, how should the student handle the tuition gap? After undergoing financial literacy training, students often become inspired to find non-loan solutions to make up the difference, Ruggiero says. “Seventy-five percent of the time, they still take the loan and then find another way to save the remainder by getting a summer job or working during the semester.”
Who is a good candidate for the Ascent non-cosigned loan?
Full-time undergraduate students in their junior and senior years, as well as graduate students, are eligible to apply for the Ascent non-consigned student loan.
Keep in mind that Ascent will evaluate your credit worthiness based on a number of factors, including your school, your major, and your GPA.
Loan amounts start as low as $2,000 and go up to $200,000 (aggregate) for qualified borrowers, making this an excellent option to fund last-minute tuition gaps, a 5th year of undergrad study, or graduate school.
Learn more about Ascent student loans here.