It isn’t exactly a secret that an entire generation of Americans is saddled under a mountain of student loan debt. At this point, t’s not even a question of solving the problem, so much as not making it any worse. And for that, there’s people like Zander Rafael and Amit Sinha, who started thinking about how to do just that in 2013 when the student loan crisis was on the front page of every newspaper.
One key problem they kept running into, however, was that people were paying for educations that weren’t doing much for them. They were borrowing money to enter programs with low graduation rates and low starting salaries.
In other words, said Rafael, “Students were borrowing money for something that wasn’t serving them.”
So Rafael and Sinha launched Climb Credit, a company that offers student loans specifically for high-value education programs. These schools or programs, including those on coding, health training, welding, and trucking, are shorter and less expensive than a four-year degree. According to Zander, these programs have increased its students’ salaries by an average of 44%.
Benzinga caught up with Rafael to learn more. The interview has been edited for length and clarity.
Benzinga: Explain the genesis of Climb Credit.
Rafael: Basically we said, “We don’t want to be involved in over-indebting students. That’s not a good business decision and it’s also not a good decision from a moral standpoint. But we started to see types of programs that were offering something better. We started to see programs that had high graduation rates and were providing a much higher ROI for their students.
And once we started to see education that really worked, we realized there was a massive need for financing for those schools, because they were often not traditional four-year institutions. And we launched Climb Credit to do that — to fund students in highly effective education programs and to expand access to that quality of education.
Benzinga: That’s a scary thought, to assess the ROI you got from your college education.
Rafael: Yea, and it goes a level beyond that. The education that many people pursue for a four-year degree may be mispriced, and you may have spent more than it was worth. But in some ways a bigger problem is that the average graduation rate from a post-secondary institution in the United States is south of 50%. That means that over half of the people who start don’t finish. And if you don’t finish, you get no bump in your income and you’re $10,000 in debt. You get all of the debt with none of benefits.
One of the key criteria we look at when we’re evaluating the program is graduation rate. We also look at job placement rate, starting salaries, and salary growth over time. If you attend a program, we ask how likely are you to actually finish it?
Benzinga: So you had this idea. What was the next thing you did to build the company?
Rafael: It started with schools. We said “Can we actually find these schools that actually deliver a value of education that we hope they deliver?” And we started to find them. We went to some schools and we got their [job placement] data, and then we called employers and we said “Is this for real? Are you actually hiring these people?” And then we checked LinkedIn profiles to see if people were still there years later. We really dug in to check the quality of these programs. And they passed, so that was great.
But then we said that there’s another fundamental problem in education, which is that historically schools got paid when a student sat down in class, not when they graduated and found work. And so there’s this incentive misalignment where the school is incentivized to get more students into class, not necessarily to graduate them and get them out into the workforce. They get paid when the butt hits the chair.
So we said we’ve got to address that mismatch. And we said to the schools, 'You do good work, but will you put your money where your mouth is? Will you participate in the risk in some of these loans? Will you bet on your students with us, so if they succeed you earn more and if they don’t you earn less?' And they said yes. So suddenly we were in business.
We were able to find programs that consistently elevated people's’ income at less cost than a traditional education.
Benzinga: How can somebody actually use Climb Credit? How does it work?
Rafael: First is you have to choose where you want to go to school. We work with hundreds of programs across the country. If you go to one of these programs, you’ll need to figure out how to pay for it at some point. And what will typically happen is you’ll see on the school’s website that we offer financing there. That means that we’ve vetted the program. That means the program provides a high ROI education to the student. Once there, you would apply to Climb online, application is a soft credit pull, it takes a couple of minutes to fill out an application, over 95% of people get an instant decision right then and there. And if you’re approved, you would be able to attend that program.
You pay a reduced payment while you’re in school, and then you’d typically pay your full payments for 3-5 years after you graduate. The core driver of how we settle those terms is affordability for the student. We’re looking at projected income people make from that program. Clearly for someone going into truck driving school, that’s different than coding boot camp. So we’ll look at those projected incomes and we’ll decide what is actually affordable for them to pay.
Benzinga: How do you get people to change the way they think about higher education?
Rafael: The key is differentiating that not every four-year program is created equal. I went to a four-year institution and it served me very well. I got a high ROI education from it, and I was able to graduate. There are lots of schools where the graduation rate is abysmally low, where the starting salaries are abysmally low, and they may cost as much as some of the best schools in the country. So the question is not about four-year vs two-year vs one-year. Students should just know, parents should just know, what the graduate rate is of the schools they’re applying to, and what the starting salaries are. And then they can make an informed decision.
My view is not that four-year education is inherently bad, it’s that people are making one of the largest purchases of their lives without being well-informed about what they’re actually buying. That’s the issue.