Big Data Aids In Student Loan Crisis

The student loan debt in the United States has reached $1.2 trillion and the average graduate is released into the real world $24,000 in debt. Does it sound like student loans are becoming a problem? I think it is safe to say, YES!!!!

As a somewhat recent graduate it is sad to see my generation accepting student debt as just a way of life. People constantly say, ” It”s good debt”. What?! There is nothing good about owing banks thousands of dollars. Not to mention that many undergraduate degrees these days do very little to actually land recent grads career worthy, well paid jobs. Many degrees don’t get graduates anywhere unless they go to grad school as well. It is difficult enough for a new graduate to learn how to live on their own, paying rent and bills, only to tell them they need to pay off their student loans quickly or else interest will bury them alive. Oh and this is all while making about a $30,000/ year salary.

Now that my rant is finished we can discuss if there is a possible light at the end of the tunnel for this crisis. Thankfully there are some new Startups that are helping re think the way student loans work. Traditionally student loans are granted based on credit score and have a very strict repayment schedule. New companies like Earnest are going against the lending rules and not considering credit scores when accepting borrowers. Instead, the new company looks at a borrower’s bank records, credit cards and  even social media profiles to decide if they are a trustworthy person.

You may be wondering how a company can decide what makes someone a trustworthy person? Well, Earnest uses a big data approach, looking at many different parts of an individual rather than simply one credit score that may not fairly represent that person. Earnest takes the data a potential borrower provides and puts it into their underwriting program to find what they call the “highest quality clients”. Earnest’s philosophy is not over charging financially responsible individuals with high interest rates just because they wanted an education. Earnest also allows borrowers  to pay in a much more flexible fashion, choosing the length and frequency of payments as well as the option of fixed or variable interest rates.

The reason Earnest can offer lower interest rates and flexible payment schedules is because of big data. The company uses big data to make quicker, more informed decisions on who to lend to, ultimately saving the client money by skipping and extra labor or middle men. It never ceases to amaze me how many different areas big data can be used in to create efficiency and reel in savings. Maybe if other lending companies adopted the big data approach to determine which of their clients are financially responsible then they could charge them less interest. This would be a great incentive for people to pay their loans on time every month!

Let us know what you think! Student loans are a heavily debated topic, we know you have an opinion, and odds are you have student debt as well!

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