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Aaron Pisacane 21 Sep 2021 3 min read

Social Impact Bonds

Why student loan lenders should care. 

Increasing college access with Social Bonds

Social Bonds use bond proceeds to raise funds for new and existing projects that have positive social outcomes. The International Capital Market Association administers a framework that guides bond issuers on how to meet Social Bond Principals (SBP).  SBP support bond issuers in financing socially sound and sustainable projects that achieve greater social benefits.  Benefits include matching bonds with investors seeking to invest in SBP.  

Voluntary transparency is achieved by the tracking of bond proceeds used for Social Projects.  The SBP recommend a clear process and disclosure for bond issuers, which investors, banks, underwriters, and placement agents use to understand the characteristics of a Social Bond.  

Social Projects: using education loans to increase college access 

This financing topic relates to my passion to solve the decades-old problem of helping hardworking college students pay for college based on their risk profile. Traditional credit underwriting models are ineffective in accessing the risk of college students to successfully payback their student loans.  Student loans without cosigners breaks traditional student loan lending models.  It also provides an opportunity for student loan lenders to expand their loan programs from Einstein's credit platform. 

Smarter credit underwriting that increases college access

The Einstein Risk Score uses nontraditional data to increase college access for many college students. Traditional FICO scores and employment requirements lock access to college especially for disadvantaged socio-economic populations that deserve more support from lenders.  This limits college access to essential services such as education and vocational training that are recognized by SBP as a typical Social Project.  

The Einstein Risk Score can benefit the target populations of SBP that include the underserved, owing to lack of quality access to essential goods and services.  A no cosigner student loan is one method of increasing access to underserved populations for essential services such as education. To do it responsibly to achieve a social good requires a robust risk assessment framework, access to relevant alternative data and technology to process the vast amounts of data through a modern credit engine.  Simplicity and shortcuts can easily lead to poor student borrowing outcomes and more bad press for student loan lenders. This is not what the industry needs. 

Think about adding another loan program to your product offering that can be safely piloted. Also consider using a portion of bond proceeds to meet Social Bond Principals.  You may find that investors, your Board of Directors, colleges and others recognize your organization for the social good that you are promoting.  The student customer will certainly notice!   

More about Einstein Higher Edu Solutions and how we can partner with lenders and colleges to meet their college access goals.