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Apples, Oranges, and Student Loans

When it comes to getting admitted to the college of your dreams, it's all about academics, community involvement, exam scores, and personality. But when it comes to footing the bill, banks consider your income and your credit history when deciding whether or not to approve you for student loans. Ever wonder why these two critical steps of attending college are treated like apples and oranges?

Raza Khan, president and founder of My Rich Uncle, an education finance company, did. "What I noticed is that students applying to colleges are evaluated based on certain admissions criteria that the student actually has control over," he explains - you know, things like GPA, SAT score, and personal essays. "But when they go to borrow money, the banks use different criteria. We want to bridge that gap. We want to take a holistic view of the student, in the same way that admissions officers do, by considering employment history and academic performance when determining what loans to approve."

Sounds like a great idea - after all, most high school students don't have a credit history or any major purchases under their belt. So how come no one else is doing this for student loans? "Banks are much less comfortable with unsecured lending to students than many of the other low-risk loans they can make," explains Khan. "This year, American banks did $1.7 trillion in mortgages, $186 billion in auto loans, and only $10 billion in private student loans. They make so much money on their low risk loan products that it's not a priority for them to focus on students."

However, the exclusive focus of My Rich Uncle is exactly that - student loans. "Ultimately, what we're saying is we can do a better job predicting what a student's future income will be, and making a determination based on that," explains Kahn. "Hopefully by January 2006, we'll be offering financing to students for free, and we'll get a percentage of their earnings post-graduation. It's a debt-free way of getting an education."

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