How responsible lenders are tackling the student loan debt crisis

Education loans abroadWhen an internationally reputed university has admitted you into their top ranked MBA program after a grueling admissions process, why don’t international student loan providers keep it simple and approve the entire loan that you requested for?

If you’ve been denied a student loan, chances are that the lending company behaved like a responsible lender and did it in the interest of multiple parties – the student, the education loan company, and the broader economy.

In this guest post, Chloë Foden, Head of Marketing at Prodigy Finance, talks about the student loan debt crisis and how responsible lending policies and practices can help in mitigating the risks.
 


Student loans from responsible lenders

An answer to the student loan debt crisis | By Chloë Foden

 
The US student loan debt crisis has been in the spotlight for some time – but why is the situation so bad, and how did it get to this point?

Suze Orman – author, financial advisor, speaker and TV host – sheds light on the problem in this insightful interview with Daniel Roth, Executive Editor of Linked In.

The problem, she says, stems from the fact that many lenders in the US, both private and the government, simply aren’t lending responsibly.

Students are allowed to take on tens of thousands (and sometimes hundreds of thousands) in debt, with no real evidence that they’ll be in a position to pay it back after they graduate.

This doesn’t benefit the lender, and it certainly doesn’t benefit the student borrower.
 

So what is the solution to the student loan debt crisis?

Lenders need to be more responsible. By definition, the meaning of responsible lending extends to policies and practices that go beyond profit maximization.

Suze says that student loan amounts need to be limited, and ought to be based on their degree of choice as well as their ability to pay back the loan.

The good news is that there are responsible lenders out there – and Prodigy Finance is one of them. Prodigy Finance is the pioneer of P2P financing in the international student loan space. (We did an interview earlier with MBA Crystal Ball about our collateral-free education loans.)

So what do we at Prodigy Finance do to ensure that we’re a responsible lender? For one, we do exactly as Suze Orman suggests, and cap our student loans at an amount based on the student’s degree of study, and their ability to repay the loan.
 

Loan amounts based on degree of study

At Prodigy’s Finance’s inception in 2007, we were lending to MBA students exclusively. Why MBAs?

Because the prevailing data shows that most MBA graduates experience, on average, a salary jump of up to 57% (students earning a pre-MBA salary of less than $50K p.a. can experience a post-MBA salary jump of well over 100%) enhancing their ability to pay back their loans.

But, Prodigy Finance has now expanded to provide international student loans for other postgraduate degrees, including EMBAs, Masters in Finance degrees and Masters in Management degrees at certain top business schools.

Of course, our methodologies still apply for these degree programmes, ensuring that our responsible lending model is intact across all loans we offer.
 

Loan amounts based on affordability

In addition to lending based on degree, Prodigy Finance considers the individual affordability of each student we lend to. This is done through the use of a customized predictive scorecard developed based on thousands of data points from previous graduates doing similar degrees.

This predictive model allows us to assess a student’s affordability, or ability to pay back their student loan, more accurately than if their current salary and credit record are the only considerations.

Since we strive to be a responsible lender, some applicants may not get the full amount that they initially request. While this may be frustrating for the applicant at the time, we are trying to offer a loan that is in our customers’ best interest.
 

Tips for the Prodigy Finance education loan application process

There are, however, a few things that applicants can do upfront that will aid their application process:
 
Student loan abroad studies

  1. Ensure that all sections of the loan application are 100% complete, to avoid unnecessary ‘back and forth’ between the applicant and our applications team
  2. Applicants should include full details of their overall financial situation upfront. Any extra funds that the applicant has access to that could be allocated towards their studies should be included in the ‘Additional Information’ section.
    This is helpful, as it allows our applications team to see that if they can only offer a reduced loan amount (compared to that initially requested by the applicant), then the student will still be able to afford the full cost of attendance by supplementing their budget with those additional funding sources.
  3. Carefully read the instructions and tasks sent via the dashboard, and make use of Prodigy Finance’s Knowledge Base to make sure that the documentation the applicant provides is complete and accurate – again, to avoid any unnecessary ‘back and forth’.

 

What to expect when applying for a student loan with Prodigy Finance?

It’s no surprise that loan applications can take time to be 100% completed and finalized. With Prodigy Finance, here is an idea of a realistic timeline to expect when applying for a loan. For some steps, the speed is very much dependent on the applicants themselves:

  1. Student submits their application (ideally with all sections marked at 100%, as described above)
  2. Within 2 business days, the applicant will get conditional approval, including their rate and loan amount offered
  3. The borrower has one week to accept or decline the offer
  4. Borrower accepts the terms, and then must upload various documentation to support the details of their application. This should take 7-14 days, but is largely dependent on how proactive the borrower is at obtaining and uploading the correct documentation. Theoretically, it is possible to finalize a loan in less than a week!
  5. Once all documentation is received, the only thing left is for the student to sign their final loan agreement (electronically) when they arrive on campus for the start of their studies. The funds are typically disbursed about 10-14 days after the start of class.

If you’re seeking to do an MBA, or other postgraduate degree, abroad at a top business school, you might want to consider Prodigy Finance as an option for financing your degree. Since Prodigy Finance is a responsible lender, you’re more likely to be in a position where you can afford your repayments after you graduate.

Learn more about education loans from Prodigy Finance: Edu Loan FAQs | Blog | Get a Loan
 


Bio: Chloë Foden is the Head of Global Marketing at Prodigy Finance and joined the company in September 2014. Chloë is particularly interested in driving social value and community building, and looks to grow Prodigy Finance into the leading global option for international student loans.

This sponsored post is part of CrystalConnect, an outreach initiative by MBA Crystal Ball.


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MBA Crystal Ball provides professional Admissions Consulting services. Hire us to improve your chances of getting into the top international universities. Email: info [at] mbacrystalball [dot] com

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Prodigy Finance
Prodigy Finance is the pioneer of community-based student financing. To date, the company has funded students from 115 countries with repayment rates in excess of 99%.

3 Comments

  1. Purohit says:

    Isn’t this be a bigger problem in India than in America? Or is it less here because all Indian banks ask for collateral so default risk is low?

    Anyway, my real question is that how many Indian students get accepted / rejected for Prodigy loan application each year? What are main reasons for rejection? is ranking of college important?

    soory for too many questions!!!

  2. Chloe says:

    Hi Purohit

    Thanks for your comment. About 80% of students who apply for loans with us(for a business school where we have a loan programme in place) receive an offer from us. Applicants residing in India have the same acceptance rate proportionally as any other population group.

    The main reason for Prodigy Finance not offering a loan centres on ensuring that the applicant can afford our loan (and others) without experiencing financial hardship. We consider ourselves to a responsible lender which means that from time to time we cannot extend a loan to an individual based on our affordability assessment from the information they have supplied us with.

    From an applicant’s point of view, reasons for not accepting the offer range from finding alternative funding sources through to deciding to defer studies or to attend a different university at which we do not offer a loan programme.

    Regards the final part of your question – yes, the business school ranking is part of our assessment for determining post graduation salary changes, therefore it is an important consideration.

    I hope this helps!

  3. Joe Kazan says:

    I am agreeing with Suze. I highly appreciate with her that student loan amounts need to be limited. Without any real evidence the lenders should not permit them. The lenders should be more careful about their responsibility. Your tips are very helpful. Thanks for sharing.

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