Human Capital Score
12th February, 2009 - Posted by Alan - No Comments
When you apply for a private student loan, lenders want to know what risk they would take by loaning money to you. To be able to do these assessments there needs to be a set of standardized (i.e. common and comparable) and verifiable (i.e. trustworthy) attributes.
The most common form of credit score is the “FICO® score”. (Learn more about FICO® scores). FICO® scores are based upon such attributes as the number of credit cards you have, outstanding balances, payment history, bankruptcy. Based on this form of methodology, students (or young adults in general) will fare poorly, as they do not have a long (or even medium) positive history of payments. As a result, they will generally receive low FICO® scores and, thus, will look like very risky propositions. This is where the Human Capital Score™ comes in.
The starting premise for the Human Capital Score™ is that there is a way to assess the relative riskiness of students by looking at a different set of standardized and verifiable attributes. These attributes help predict their future income, and hence their ability to pay back loans. These relevant attributes are items such as school, major, GPA, and standardized test score. The Human Capital Score ™ uses these as inputs to create a score.