My Rich Uncle was an online lender founded by Raza Khan and Vishal Garg. The pair, who met at an elite New York high school, sought to help students finance their college education by offering student loan products with interest rates lower than they could get from the federal government.
At that time, the Department of Education outsourced federal student loan lending to private banks and lenders like Sallie Mae. The loans, which were made through the now-defunct Federal Family Education Loan Program, had high-interest rates that weren’t based on a borrower’s credit score or other factors that reflected their creditworthiness.
My Rich Uncle sought to fill that gap by offering rates up to 1.5% percent lower than the fixed and variable interest rates available from the federal government. To meet its goal, the founders used a proprietary algorithm based on Milton Friedman’s “human-capital contracts” lending model. The software would review applicants’ transcripts, school, course of study, and other information to predict their future earning potential. As a result, students with stellar grades in majors that the labor market rewards with higher pay may qualify for a rate lower than a liberal arts graduate with a spotty academic record.
With funding from investors like Merrill Lynch and advertisements that criticized the existing lending model, which universities’ financial aid offices heavily controlled, the company launched its website, myrichuncle.com, and quickly made a splash in the federal student loan market.