The AI Rewriting Bias In Student Lending

Founded: 2016
Investment: 2107 First round check (out of angel fund)
Category: artificial intelligence, fintech

Funding U is a mission-driven, AI fintech that specializes in providing "last gap" student loans to high-achieving undergraduates without requiring a co-signer or focusing on traditional FICO scores. It is notable in Valor's portfolio for many reasons--including being Valor's first AI investment (2017).

Core Mission & Market

Founded in 2016 by CEO Jeannie Tarkenton, the company addresses a $30 billion annual market for students who are often ignored by traditional banks. These students typically lack the "generational wealth" required to have a creditworthy adult co-signer.

• Target Audience: Undergraduate students at four-year, not-for-profit colleges.

• Demographics: Approximately 60% of borrowers are non-white, with African-American females at public universities being a significant subset.

• The "Gap": Most loans cover the final $3,000 to $10,000 needed to complete a degree after federal aid and grants are exhausted.

Proprietary AI & Underwriting

Funding U uses a "non-FICO" approach, shifting the focus from a student's family background to their personal academic potential.

• Predictive Modeling: Their proprietary SMaRT™ analysis uses a "data lake" of millions of points, including entire academic transcripts and financial aid letters.

• Key Factors: The algorithm assesses the likelihood of graduation, future employability, and projected earnings based on the student's major and academic trajectory.

• Risk Management: By proving the creditworthiness of "thin-file" students through longitudinal data, they have secured major financial partners like Goldman Sachs.

Product Terms & Comparison

Funding U positions its loans as a responsible alternative to high-interest credit cards often used by students in financial distress.

• Interest Rates: Typically range from 7.49% to 12.99%, significantly lower than the 20-25% rates common on student credit cards.

• Repayment: Offers flexible in-school options, such as a $20 minimum monthly payment or interest-only payments to reduce the total cost of the loan.

• Terms: Full principal and interest payments begin six months after graduation, typically over a 10-year term.

Strategic Growth & Platform Services

The company is expanding beyond direct lending into a Platform as a Service (PaaS) model to support broader workforce initiatives.

• Workforce Development: They partner with corporations and state funds (e.g., in New Jersey) to manage specialized loan programs for high-demand fields like healthcare and cybersecurity.

• Post-Affirmative Action Role: In light of recent Supreme Court rulings, the company is experiencing a surge in demand as universities struggle to meet the financial needs of diverse student bodies.