NYLP: Welcome to a special episode of the New York Launch Pod, I am very excited to announce a brand new series that you will see from time to time in addition to our monthly podcast.
We’ve had on some fantastic guests, and a lot of people have reached out to me and said, “what happens to your guests after they appear on your podcast?” Well, if you go onto NY Launch Pod.com and subscribe to our freshly rebranded newsletter, you will be able to track their publicity each month. But we also wanted to do some follow up interviews.
Our guest to kick off this series is Angela Ceresnie, who first appeared on Episode 8 as a co- founder of Orchard. She has moved on to a new start-up called Climb Credit. We checked in with Angela, and I hope you are as excited as I am for this production that is about to hit your ears in our very New York series called “How You Doin’?”
NYLP: So you are back, welcome back Angela Ceresnie!
Angela: Thank you for having me.
NYLP: So how does it feel to be back?
Angela: It feels like I never left.
NYLP: It feels like you never left. So you’ve taken on a new position, we know you from Episode 8 with Orchard, and now you’ve moved on to a new start-up called Climb Credit, and it felt like the perfect opportunity to have you back, for How You Doin’?
Angela: I’m so excited to be your first installment of that.
NYLP: So what is Climb Credit?
Angela: If you’ll recall from the episode where David and I were here talking about Orchard, one of the things that we discussed was a new lending ecosystem. And Climb Credit is a part of that new lending ecosystem.
NYLP: And for listeners who are tuning in and who don’t know what the new lending ecosystem is about, first of all, you should listen to that episode, but if they haven’t, what is a new lending ecosystem?
Angela: So, historically, if you wanted to get a loan, whether it was a student loan, a home loan, credit card, there were a small number of very large players who lent. So, companies like Citi Bank, Chase, American Express. In the last five to 10 years, there have been a number of smaller start-up companies who have created better and more user friendly, or in some ways, more niche lending products for specific audiences.
Some large companies that people probably have heard of are Lending Club, Prosper, SoFi, who have approached the lending market from various angles. Climb Credit is approaching the lending, the student loan lending market, from a different angle than has historically been approached.
NYLP: What is this new angle?
Angela: What we do is we try to align all the interests, so typically, today, if you have a student loan, or any of your listeners have a student loan, you probably got it from the federal government, and maybe got some additional private student loans from either Sallie Mae, or your bank, or maybe some other companies.
Those lenders typically advance the entire tuition up front to the school. And so what that means is that a school is then incentivized to, instead of making sure that you get a job and can pay back that loan, instead to fill the next seat the next year, so they can get that tuition.
We’ve created a lending product that advances a portion of the tuition up front to the school, which means that the school, and then school receives the holdback overtime, as the students pay back. Which means that the school is now incentivized to provide the best education and the best career support to the student so that they’ll make the money to be able to pay back the loan.
And our product also is available to anybody who attends the program, regardless of credit. So, if you have a great FICO score, wonderful, if you don’t, if you either have maybe weak credit or no credit at all, we have a product for you, and we’re able to manage that risk because we advanced only some of the tuition to the school.
NYLP: And so, why are schools signing up if they’re not getting the full amount of the loan, it seems like an interesting thing that no one’s ever done before.
Angela: Yeah, no, that makes sense. So, the reason it makes sense to the schools is because we can offer a product, a lending product, or a loan, to any student who wants to attend. And so, another layer of our business model is that we only work with schools that are, what we call, ROI positive.
So, a school has to be providing education that makes sense financially when compared to the cost and the amount of time you have to take out of the workforce in order to attend. So, if you are making minimum wage, which, we assume is about $20,000 a year, and you go to a nursing program, let’s say, that’s 8 months long, costs $10,000, and coming out, you make $30,000, that’s a great investment. But if coming out, you still only make $20,000, that’s not a good investment. Because you took that time out of the work force, and you now owe $20,000 or $10,000, whatever the tuition was.
So, we run a really thorough analysis on every single program that we work with to makes sure it hits those standards of being a positive ROI to the students. And then, once we felt comfortable with that, as I mentioned before, we’ll underwrite everybody.
Angela: Everybody. So, from a school perspective, they like the fact that they can have a one stop shop. If you’re an admissions officer at a school, the last thing you want to do is have to offer 3, 4, 5 different loan applications to your potential students. Because then they’re having to hear no, no, I’m declined here, I’m declined there, oh I can only get a little bit here, that sort of thing.
And so, what we’re able to do is we’re able to say, send everyone. We’re already comfortable with your, that your education that you provide is of a positive value to the students. We’ve assessed your graduation rates and your job placement rates, the industry that you’re putting people into, and we feel comfortable with that. And, because, on the lower credit people, we might advance a little bit less, the risk to our investor base is a little bit lower. So, it aligns all of the interests.
NYLP: And so what schools are you working with? Because, I was actually on the subway the other day, and I saw a subway ad and it was, I forget what the school was, but it says, “we catapult more students to the middle class than the Ivy League combined.” And I thought that that was sad for the Ivy League, I may not be quoting the ad exactly, but generally, there are schools that help students increase their incomes and increase their, let’s call it social standing. What are the schools that you’re working with?
Angela: So, we work with a really broad range of schools. We started with the coding boot camps. The reason we started with those, for your listener base, who might not know, coding boot camps are programs that have been popping up, I’d say in the last 5-10 years, that take, typically people with a college degree, but not always, and train them to be entry level software developers.
The coding boot camps, some of them, are small, mom and pop type schools that train around 50 people a year. There are really large ones like General Assembly, who’s a partner of ours, that trains thousands of people a year.
That was where we started. Our founders, who are our CEO, Zander Rafael, our CFO, Amit Sinha, and our chairman, Vishal Garg, saw the coding boot camps as the best entry point to being able to fund this type of education, because they’re very high ROI. They take people who are making, you know, 40, maybe 50 thousand dollars a year, and immediately get them, after sometimes even a 12 week program, a job making 60,000 dollars a year as a software developer, which is a great track to be on.
There are no financing options. So, they don’t have access to federal funds. Most of the large private student lenders don’t work with them, because they’re still relatively small. And so, it was an easy, I think, entry point. Now we work with all types of schools. So, we work with healthcare schools, we work with truck driving schools, we work with schools that teach people how to use heavy equipment and other types of machinery. We work with schools that augment educators’ education, so somebody who is a K through 12 teacher and needs to get a Master’s degree in order to either keep their job or make more money, there are several online programs that offer that, we work with some of those.
NYLP: And how long are the schools? They’re not colleges, right?
Angela: They can be colleges or universities. The programs themselves tend to be about two years or less.
NYLP: What makes these schools increase people’s incomes? What are the factors that you’re looking for in these schools that say, you know what, this is a school that will help someone versus a school that will not help someone? Because that’s certainly, when you’re in the private sector, it’s obviously been a big issue recently about private schools. Some schools are not helping people’s income, some people are. You’re in the credit world evaluating these schools, and you’re looking at all these schools closely, as opposed to a student. What is increasing people’s incomes?
Angela: The most important factor, at the beginning, is the industry. So, if someone came to us and said, “we’re a school that teaches people how to fix fax machines.” You’d say, “well, that doesn’t really seem like a growing sector.” Right? So, first what we do, before we work with any type of school, is we have an understanding of the vertical in which they’re teaching people to be able to get jobs.
NYLP: And what are some of the hot verticals?
Angela: The ones I named are.
Angela: Yeah, trucking. We see more positive results from local trucking as opposed to the long segment trucking, so that is a growing field.
Again, before we work with any school or any industry, we do research. And so, we’ve talked to a lot of people in that industry and others, and have an understanding of what the bull and bear cases are for the industries.
Healthcare is obviously a growing field. We see it in IT training. So, not the coding boot camps, but the IT training, teaching people how to be Cisco certified, and there are some Microsoft certifications where there’s still pretty big demand.
What’s also interesting about the coding boot camps is, I think, especially from living in New York, you probably think of, okay, so someone goes to the coding boot and they go work at a start-up. Right? Or they go work at Google or something like that.
One thing I’ve learned, since joining Climb and meeting with a lot of these schools, particularly outside of the coasts, is that a coding boot camp in Louisville, Kentucky is training people to be software developers at the insurance company there. Or a coding boot camp in Las Vegas, Nevada is teaching people to be computer programmers at the gaming companies that make the slot machines.
Those boot camps are actually teaching different computer programs than the ones in San Francisco or New York or Austin. So, even there, there’s kind of a broad range.
But the most important factors are graduation and placement rates.
NYLP: And how do you find those out? Because I know that that was a big thing, I’m a lawyer, it was a big thing for law school about graduation and placement rates, that you can kind of fiddle with the numbers a little bit.
Angela: You absolutely can. And, actually, it’s funny, because I have a lot of friends who are lawyers, or went to law school, and I remember hearing the complaining about how you don’t really know the placement rates and all that of the schools, because a law school will count someone who’s working as a waitress as an employed graduate, when in fact, you don’t…
NYLP: Well, also, they were counting employed by the school with all that.
Angela: Right. So we absolutely see that same stuff. I actually had a school that we work with submit some diligence information. We do recurring, where every year they have to continue to send us information. I had a school send us something a couple weeks ago, where I saw that a number of their graduates were working at the school. So, that’s a follow up.
NYLP: You followed up? You didn’t drop them?
Angela: It wasn’t enough to drop them, but it was enough to follow up and ask some questions.
NYLP: Placement rates and industry are your two main ones.
Angela: Yeah, and it’s graduation rates. Because, actually what’s interesting, so Title IV, which is the federal funds that are dispersed through the federal government to schools that accept that, they publish all their data. So you know, for every school, what their performance is on repayment on their Title IV loans. And a bunch of other data about how their school performs. And we have a plot, like a graph, that plots the placement rates and the default rates, or I’m sorry, the graduation rates and the default rates. And what you see, is as graduation rates go up, the default rates on the federal loans go down.
So, you have schools that have 20% graduation rates. And most of those schools have really high default rates on their loans, because you have people who have now taken out a loan, and they didn’t even get the goods. Because if you don’t graduate, you don’t really get credit.
NYLP: And that’s what you’re talking about with the incentive, because their incentive is to fill the seat, not to graduate the student.
Angela: That’s right, they already got a, and most schools aren’t nefarious, right? But, you have incentives, right? And where are you going to put your resources? And one of the challenges that has been identified in some of the schools that have been really called out as not doing the right thing, some, there have been a lot in the news, ITT, some of these other companies. One of the things that they all have in common is their largest line item is marketing. Because they’re out there marketing to fill the seats. They could take some of that money and put it towards career counseling, and job placement assistance and stuff like that. And you see schools who put resources towards that sort of stuff having better placement rates.
NYLP: So when Climb Credit is with a school, are you partners, are you the exclusive lender, how does the relationship work?
Angela: So, it depends on the school, but we consider them partners. And in fact, we have a team that’s dedicated to managing the relationships with our school partners. We treat them like clients. So they’re very important to us, mainly because their business is our business, right? Our entire business development team is out there talking to schools, but part of the process of getting a school on is doing a lot of diligence on their performance.
NYLP: How much diligence?
Angela: It’s a lot. It’s a lot.
NYLP: I mean, what are you talking about? I ask this because, a student is looking at a school, and they are applying to different schools and have a job or maybe not the resources that a credit team has, in terms of what you’re doing. But, how much time are you actually spending on diligencing one of these schools?
Angela: So, sometimes it’ll be 6 weeks.
NYLP: Six weeks, how many people?
Angela: Well, I mean, it’s back and forth. But this is how it goes. We call up a school, or the school calls us. And we send them basically a data request. We ask for program level data for every program that they want us to help finance. And we have a whole calculation, ROI calculation, that we’ve developed and fully documented, that we run every program through.
If the data doesn’t check out, for some reason, it either looks high compared to other ones we’ve seen, or for instance, if, let’s say it’s a nursing program, and they say that their graduates make $150,000 a year, starting, on average, but we know based on BLS, the Bureau of Labor Statistics, and other publicly available data sources, that same type of nurse actually makes $90,000 a year, then we probe.
We either just notch it down to 90, or we ask for more details. So, we do quite a bit of back and forth there. If we find that the ROI for a program at a school is greater than 7-1/2%, then we’re generally comfortable with the quality. At the same time, we’re also doing a thorough review on the corporate entity itself. Making sure there are no lawsuits, background checks on all the executives, we review all their financial statements, you know, you want to make sure that the company’s going to be around.
After all of that is when, as an organization, we make a decision whether or not we want to work with them.
NYLP: And do you become the exclusive lender for that school?
Angela: It depends, not always. With Title IV, where those federal loans, they’re not allowed to have exclusivity with private student lenders. If there’s no Title IV, then they don’t have that requirement. So it’s allowed.
We are exclusive with a few schools, but we do find that schools, having an exclusive relationship is a little bit risky on their part. Because, if that lender were to go away for some reason, then they don’t have a lending option for their students.
NYLP: Right, that makes sense. And what’s the interest rate for the loans?
Angela: So, it’s as low as 5%, and it can go as high as 12.
NYLP: And that depends on the student’s credit score, or the school?
Angela: Both. So, some schools elect to have a flat credit score. So, everybody there has the same interest rate, regardless. If a school doesn’t choose to do that, then it’s based on FICO. On risk.
NYLP: And how does that compare to federal student loan interest rates?
Angela: It depends. For the most part, it’s higher. Partially because, just cost of capital. The federal government has the lowest cost of capital out there.
NYLP: You don’t have the ability to print money?
Angela: Yeah, right, exactly. Getting there. Working on it, working on it.
So, I’d say it’s higher, but it’s comparable to any other options that are out there to augment the federal government.
There are some federal government programs that are higher than that. So some of the parental loans, and more fringe lending products that they offer.
NYLP: So, why does a student go with a Climb Credit loan, versus a federal loan?
Angela: They would not. So, another thing to understand about our business, is we understand that if you can get money from the government at a three percent interest rate, or you can get a scholarship or grant funding from the GI Bill, you’ll absolutely take that, and we would never recommend that a student not take that.
We fill the gap. So, at schools that accept federal financing, those schools are not allowed to fill their whole tuition with revenue from the government. They have to have either cash or private student loans to cover some portion. So that’s where we’re at.
And, based on our estimates, there’s about a $190 billion market out there.
NYLP: For private loans?
NYLP: And what’s the default rate in your loans?
Angela: So, the default rate depends on the school, but it tends to be in the single digits.
NYLP: How much capital do you have to loan out?
Angela: A lot.
NYLP: A lot?
Angela: A lot.
NYLP: I thought you were a little start-up, no?
Angela: We are, but our, we have basically two sides of our business, right? So, we work with the schools, that’s where we get our partners and our end customer. The ultimate customer, which is the borrower, or the student.
We also have a whole investor side of our business, which is raising the capital so that we can lend it out. That, we’ve been very successful at. We’ve got a number of really great partners, and hundreds of millions to lend out.
NYLP: So, you’re ready to give out the money.
NYLP: Do you sell the loans?
Angela: Yes, that’s part of the way we finance the business, is we make the loans, and then we sell the loans. So we have sort of different options in terms of how we fund them, but we do. Which is interesting, because that was sort of the crux of Orchard’s business, was facilitating the sale of whole loans.
NYLP: Which is where you came from?
Angela: That’s where I came from.
NYLP: And so you’re familiar with this marketplace?
Angela: Oh, I’m familiar with the model, yes.
NYLP: And what’s your role now, in Climb Credit?
Angela: I’m the COO.
NYLP: And what does that mean?
Angela: Just like any COO, it’s a little bit nebulous, but I run the day-to-day operations of the company, which can be anything from just the office to our strategic planning and thinking about, where should we be 12 months, 24 months from now.
On a day-to-day basis, I run all the legal compliance, which is actually a decent amount, because we have to have a lending license in every single state.
NYLP: How many states are you in now?
NYLP: That’s close to 50.
Angela: So close.
NYLP: So close.
Angela: So close. We got a few holdouts. Got to get the Dakotas.
NYLP: The Dakotas? New York, you have.
Angela: Have, well, New York has a, in a lot of states there are usury laws, right, where if you lend below a certain APR, you don’t need a license. So, we, in some states, rely on that. And in other states you have to have a license, every state is different.
NYLP: But you’re lending in New York.
Angela: We are lending in New York and California.
NYLP: Excellent. And California. And how many people are with your company that is lending out billions of dollars?
Angela: We’re at 20 people.
NYLP: You came from Orchard, you’re familiar with this new ecosystem. Are there other people that have been doing similar things to Climb Credit? How is this new ecosystem working?
Angela: Yeah, so there’s a few players that are in this student loan space. So, two large companies that people probably would’ve heard of are SoFi, who is pretty big. They had a Super Bowl ad.
NYLP: I’ve heard of them.
Angela: Yeah? And Common Bond, who’s similar to SoFi, they’re New York based. They are more on the refi side of things. So what they do is, you go out there, you get a federal loan to go to law school, it’s at 6% interest rate. Everybody gets 6% interest rate. Regardless of your credit score, whether or not you graduate, because they obviously don’t know that when they give it to you, whether or not you pass the Bar.
So, once someone has graduated, and passed the Bar, the risk on that loan is going to be far lower than whatever it was priced at when it was initially issued. And so, those companies refinance student loans on people who have graduated. So, it’s a little bit of an interest rate arbitrage. Great business, both of them. And they both are starting to do other things, too.
But what we’re doing, which is lending to students as they’re entering school, instead of refinancing later, is a bit more unique within the kind of start-up ecosystem. Not really a lot of other players doing it. And part of the reason why is it’s hard. It’s really hard.
NYLP: What’s in it for the school if they’re only getting part of the money up front?
Angela: To be clear, most schools get 70% or 80%, it’s not a tiny amount. It’s high enough. But, again, I think I mentioned this before, it’s the single point of sale. So, one of the challenges that we’ve learned as we’ve worked with more and more schools is that, an admissions director, admissions officer, who’s meeting with students and trying to tell them about the program, explain to them what the financing options are, would prefer to have just one place where they know the person can apply and just know that they’ll be able to get a loan. So, you know the federal government’s there. For some amount. There’s gonna be some left over. If that leftover, you know they can get financing from Climb, that’s a really, really great incentive for them to work with us.
NYLP: What makes Climb unique? Why’s Climb going to win?
Angela: I think there’s a number of reasons why. One is, we have a great team. A really, really, good team of people who are dedicated to the mission, working really, really hard to further the objective of expanding access to quality education.
The second is, I think, because we are mission based. So, we don’t work with schools that we don’t think are doing the right thing. Or even programs within a school that we don’t think are right. And that can be really hard to do, because when you’re a startup company, trying to grow. It can be easy to say, “well, you know, that program’s not the best, but it’s there. It would get us more volume.”
NYLP: And it has a good name.
Angela: And it’s got a name, or it’s got, they want to work with us, or whatever. And, I think we’ve been really disciplined about not doing that. And I think that’s gonna pay off in the long run, both from a brand and sort of doing the right thing perspective, but also I think from performance. I think we will see lower default rates, higher student satisfaction, fewer CFPB complaints. All of the positive things as a lender, that you would want, because we’re only working with schools that are doing the right thing.
NYLP: Well that’s great to hear that schools are doing the right thing. We know you from Orchard, which we talked about. How come you left Orchard to go to Climb Credit?
Angela: I was excited by Climb’s mission. Climb is just on to something really special. I think we’re riding a future wave of something that needed to happen in education, which is moving away from the one size fits all, everybody goes to the four year university, and either pays for it themselves if they’re lucky, or gets a ton of loans, and then you figure it out. I don’t think that’s where we’re going as a society, and Climb is positioned really well to help enable our education system to move in the right direction, and to capitalize on it at the same time.
NYLP: Well, it’s very interesting that you talk about the socio-economic structure, because it’s certainly a hot topic in the education world, and you see tuition increase, and four year colleges, which people thought, you have to go to college, you’re saying, may not be the future. And may not be the future for everyone.
Angela: That’s the thing, is that, I think that I recall, when I was graduating from high school, that there were like two tracks. It was like, you went to college, or you just didn’t. And there wasn’t this option of, you go work for a little while, and then maybe you go to trade school. Or maybe you go to vocational school, or maybe you go to a coding boot camp, or maybe you go to nursing school. And it’s not four years. It’s just a year or two, right? And it’s, instead of $80,000, $100,000, $200,000, it’s $20,000.
Those options weren’t, I just don’t think they were clearly available to people, or presented. Part of what we want to do is present those. And for some people they’ll make sense, and for other people they won’t, but I certainly wouldn’t want what’s happening today, without Climb, someone does find one of these great schools, they go there, and because they have not a great FICO score, no credit at all, they can’t get that additional loan to cover the gap that the federal government can’t fund, and so they can’t go. And so then, they can’t get that education, which means that they can’t have the wage growth and the life trajectory that it would put them on.
And I like that we’re enabling people to do that. And I hear about it all the time from our, you know, we have student outreach, and success stories that we put on our blog, and stuff like that. And it’s exciting to hear about somebody who was enabled to go to one of these programs by a loan we gave them.
NYLP: Well, it’s a great company that’s doing a fantastic thing, in addition to making a profit, it seems like you’re really helping people, which is also wonderful. Angela Ceresnie, thank you for stepping back onto the New York Launch Pod and sharing your time with us.
Angela: Thank you, Hal, it was a lot of fun.
NYLP: And if you want to learn more about the New York Launch Pod, you can visit NY Launch Pod. com, including transcripts of all of our Episodes, including this one. And you can follow us on social media at NY Launch Pod, and please, if you enjoyed this Episode, leave a review on iTunes. It does help people discover the show.SHARE THIS: