16_Raza Khan and Vishal Garg

MyRichUncle

Student Loans

Note: This article has been modified from an earlier version to correct the name of MyRichUncle.

Private, unsubsidized student loans have grown 27% annually for the past seven years and are on track to surpass federal loans by the end of the decade. More than 60% of students are borrowing for tuition, graduating with an average of $17,600 in debt in 2004. But the amount each student can borrow through the federally guaranteed student-loan program is limited—and only five financial institutions originate private loans. Enter MyRichUncle.

Unlike, say, Sallie Mae—the Microsoft of private lending, with a portfolio of $11.5 billion in 2004—MRU doesn't rely on punitive (and lucrative) fees and penalties to keep margins up. The year-old firm's cofounders, Raza Khan, 28, and Vishal Garg, 28, are adopting the Google mantra: Don't be evil. Their proprietary software predicts student income based on transcripts, school, course of study, and other data; a business student with stellar grades might get a .25% reduction over a pottery student with a spotty record.

Khan and Garg believe they can drive down defaults by knowing their borrowers better, but they also offer unique sweeteners: They can get you your money in five days (versus several weeks with traditional lenders) or make interest-rate reductions if you choose automatic payments. MRU's basic variable APR was 6.38% in January 2006, near the lowest in the industry. Sallie Mae's rates on comparable loans were between 6.67% and 12.43%; other private loans start as high as 11%.

Within weeks of announcing its business, MRU had a $165 million line of credit, expandable to $300 million, through Japanese bank Nomura. In 2005, MRU added 14 major marketing partners. Wall Street research firm Gateway Reports expects MRU's loan portfolio to grow from $30 million in 2005 to $150 million in 2006 and $450 million in 2007. And with tuitions rising at an average of 7%, the whole decade might just follow that trajectory.

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