[7Figures2Commas]

> Apparently they found recent grads with very large student debt load but commensurately high future earning potential had inaccurately low credit scores.

Credit scores measure the risk of future default based on past borrowing behavior. A borrower's credit score is not "inaccurately low" if there is little to no past borrowing behavior to apply the credit scoring model to.

Lenders can and frequently do take into account criteria other than credit score, such as income, when underwriting loans. In some lending markets (mostly commercial), individual consumer credit scores aren't even used.

That Earnest and other upstart lenders are choosing to more heavily weigh factors other than credit score is not particularly interesting. The true test of their underwriting criteria will come in the next down cycle. Having worked in this space, I should point out that there are many consumers with high incomes (or high earning potential) who are vulnerable. As such, I'd suggest that income and earning potential alone are of limited use in underwriting. It's not uncommon to see borrowers with high incomes who also have very low credit scores because they were over-leveraged and had serious negative credit events occur.

[zaroth]

I assume as they are getting outside funding, someone has vetted their underwriting models and loan population. I was curious to learn more about their sources of funds, number of current employees, i.e. fund performance, unfortunately nothing written here.

They are mining more information and winning a lower rate for it. To that end they are succeeding. Without understanding the source of funds, and any guarantees they are making, it's important that they provide long-term durable ROI to justify the lower rates.

If they get the lower default rate they are paying for, then Earnest has created a superior product. Their default rate doesn't and shouldn't have to be zero, but I would be afraid of trying to make up on bad underwriting with poor servicing tactics. I hope both centers are striving to be excellent at their respective jobs.

Since default rates on these loans is high and rising, there is a strong incentive to lower it. If default rates were consistently low, paying more for a marginal additional reduction wouldn't be worthwhile. When default rates are trending higher, I believe you need exponentially higher interest rates in order to break even.