Find out how you can benefit from Stride Funding [Show Summary]
Tess Michaels shares what’s new at Stride Funding, the innovative educational financing company she founded, and reflects on the impact that her Harvard Business School MBA has had on her impressive success today.
Interview with Tess Michaels, Founder and CEO of Stride Funding [Show Notes]
Welcome to the 495th episode of Admissions Straight Talk. Thanks for tuning in. I don’t usually plug Accepted services on this podcast, but Accepted is having a fantastic special, the last one of 2022, and I would be remiss if I didn’t share this news with Admissions Straight Talk’s listeners. You can save up to $1,000 on Accepted services between now and November 14th. You premeds looking to next year, now is your opportunity to lock in a package at this very special rate AND start your application early. For those of you with December and January deadlines interested in a few hours of invaluable editing and advising, you too can save. Go to accepted.com, choose the type of service that’s best for you, and use coupon code SAVENOW. This special ends November 14th.
I’d like to welcome back to Admissions Straight Talk Tess Michaels, Founder and CEO of Stride Funding. Tess graduated from Penn with a Bachelor’s in Applied Science and another Bachelor’s from the Wharton School in Global Impact Investing and Operations Management. While at Penn, she founded SOCEANA, a platform to democratize giving and promote corporate volunteerism, which was acquired in 2018. After graduating and being accepted to Harvard’s 2+2 program, she worked at Goldman Sachs as an analyst for two years, and then at Vista Equity Partners as a private equity associate. As soon as she arrived at Harvard Business School, she founded Stride Funding, which we’re going to learn a lot more about in today’s show.
Can you give us an overview of Stride Funding’s approach to student financing and how it differs from traditional student loans? [2:20]
Absolutely. As you mentioned, I was actually inspired by my own experience as a student when founding Stride. I was part of the 2+2 program at Harvard. I knew I was going to pursue my MBA, and candidly went through the back and forth of the question, “Is it worth it to go back to school?” That sticker price is just so hefty, and I realized a lot of my peers were in the same boat. I was even asking everyone, “If you could solve one thing, what would it be?” and everyone kept saying, “I want to go back to school, but the costs are prohibitive and I have no guarantee around the outcomes.”
I became really fascinated with two concepts. One, how do we actually structure products to align incentives and naturally tie into the outcomes that students receive?
And secondly, how do we increase access? I found it so backward that despite going to a great school and great program, almost every lender asks for students to have co-signers. In fact, 92% of private loans require a co-signer which really just means being backed up by a wealthy parent or family member who has a clean credit score and can guarantee your loan. To me, that felt like such a backward system because the whole point of going to school is to do better than your family and to create future potential in your growth. I’m happy to walk through the ways that we’ve addressed this with Stride’s products, but that was really where we started.
Can you describe Stride Funding’s three products? [4:08]
We have three products on the market and are continuing to grow our product set. They range on the spectrum of product differentiation and then differentiation on access. Each of our products is non-co-signer based. Anytime you come to Stride, you know that you are going to be evaluated based on your future potential, not your historical background. That’s a core belief at Stride. With that being said, we have products that are more traditional, non-cosigner loans. We have products that are as innovative as income share agreements where you pay a fixed percentage of your income over a set number of years, and then we have products that are in between where you only make payments when you’re earning and when you are earning, they’re fixed dollar amounts that you make. That’s an overview of our three products on the market, but we continue to think about different ways to adapt them as student needs evolve.
How does one qualify for a Stride Funding income share agreement? [5:16]
We really wanted to change the entire student lending experience end-to-end. Oftentimes, there are restrictions on being able to get access to funding. The process itself is not that student-centric, and it takes a lot of time even to know if you’re going to be approved. There’s not any support on the back end to make sure that lenders are actually your supporters, so we addressed each of these.
First of all, applying is as simple as going on our website, and within 15-20 seconds, you can see if you’re eligible for funding. The full application end-to-end takes 10 minutes to complete and you’ll know if you’re fully approved the same day. Once students are actually approved into Stride Funding’s ecosystem, we have all sorts of wraparound support to make sure that they know they have a partner, not just a provider. For example, we support a lot of nurses, so we have access to NCLEX Prep which is nursing exam prep.
As far as the actual product structure, it is meant to really create a sense of security and peace of mind around affordability for students. Our contracts are only up to five years long, which is very short compared to a lot of loans that are 10 to 20 years long. You only make payments when you’re earning above a certain amount, and you don’t accrue any expenses while you’re in school or during points of nonpayment. We’re really focused on putting the student first.
How does one qualify for Stride Funding? Does your credit to date matter? [7:07]
Great question. Right now, we focus on students who are within two years of graduation. The programs are very varied, from MBA to nursing. We look at credit as far as ensuring students have clean credit. If you have little to no credit, that’s okay. Actually, I think one of the broader issues in the United States is a lack of financial literacy, so students just don’t know that they should open up a credit card early and build credit for seven years. But that’s totally fine. We just make sure that students don’t have derogatory marks or bad credit.
How much will Stride lend a student? [7:56]
We always advise that students take out grants or scholarships first. Free money is better than anything you have to have as a real obligation. Then students typically look at subsidized federal loans, and then after that, when they’re looking at Grad PLUS that’s when they should consider Stride. We typically fund up to $25,000 per year, so $50,000 per student. There are exceptions to the rule, but that actually ends up being around what our average borrower needs for degree programs.
Do students end up paying about the same or less or more in total repayment when compared to traditional private loans? [8:45]
For our degree programs, nearly all of our capital comes from large impact investors and large nonprofits so it’s meant to be very affordable. Typically, we look at our costs for an expected student to be relatively similar to what you would pay for federal loans. However, it comes with many more protections built around not making payments when you’re not earning. We’re really thinking about making sure that affordability is one of the most important factors.
Back in September, I saw Stride Funding’s announcement about the launch of the income share financing program alongside Stanford Law and the new nonprofit, the Flywheel Fund for Career Choice. Can you share more? [9:26]
This is a really exciting initiative for the whole team. We essentially looked at this and said, “How do we create an evergreen fund for programs where there tends to be almost misalignment around what students want to pursue versus the cost of education? How do we tackle that head-on with products like income share agreements, where inherently everything is tied to outcomes?” Similar to MBA programs, in law school programs, you’ll often see a lot of students pursuing corporate law even though they really want to do public work. We had some really great partners and supporters who were the folks who brought the inspiration towards grad.
We then partnered with them and said, “We’ll structure this so that every single dollar recouped goes back into funding more students.” Students pay a percentage of their income, so if they earn less, maybe because they’re pursuing public work, they pay less. The maximum a student will ever pay is what they would’ve paid had they taken out federal funding. Even if a student does decide to pursue Corporate Law, at the end of the day, they still have an affordable product.
For us, this was really a win-win. It creates a way for the school to be able to support students pursuing more diverse paths. It also allows students to focus on what their passions are and ensures that cost is not a barrier for anyone.
How is this self-perpetuating? [11:18]
We worked to set up a separate nonprofit with capital from alumni and other folks in the space and every dollar that is now being lent out to these students, when it is recouped, it’ll go back to fund future students. That really allows it to be evergreen.
Do you see other law schools or maybe other programs following Stanford’s lead? [11:42]
Yes. We are already deep in talks. We had a lot of inbounds following the announcement from peers of Stanford, both in law programs and other degree programs as well. We see this being a model that could be applicable much more broadly.
What are some of the fields that Stride is currently serving? [12:14]
The biggest segments that we focus on are STEM, like engineering and data science, healthcare, and business. Those are our three biggest segments, but there are a lot of other fields that we support, like education, where teachers tend to have very low variability professions post-graduation. As we grow, we’ve naturally tried to find ways to be able to offer our products to a broader suite of students across a more diverse set of programs.
This seems to work most effectively when students have the potential for high earnings, but if the potential salary in a specific field is lower, does it still work? [12:50]
Great question. Just to be clear, it works best where there is predictability around the earnings. It’s not so much about the absolute number. A teacher is a great example because we are able to structure the product differently. We know to a very high degree of certainty what someone who is pursuing, let’s say, a Master’s of Education is likely to earn, so we structure the product for that type of earning differently. I would not say it is in any way better or worse based on high or low-earning professions. Variability is probably the biggest impact.
What is some additional support Stride provides to its borrowers beyond just the money lent and the favorable terms? [14:00]
This is an area where we continue to think about ways to evolve. A lot of it is figuring out for any set number of hours a student has in the day, what tools they actually will utilize because more isn’t always better. Vetting high-quality tools that are going to add value is really what we focus on so we’ve really thought about that in a few key buckets. One is when students are in school and helping them find access to exam prep and ways to improve their ability to track progress while in school. Once they have officially graduated, the next step is applying for jobs. We’ve partnered with players like Teal that create job tracking systems students can actually manage where they’re applying. We’ve also looked at certain tools where students can essentially scan their resume and then scan the job description and see what phrases or things to include so they could better appeal to a certain employer.
And then, lastly, we really create an open network for students to reach out to when they have questions about their own job search process. That’s still in the early innings. We have the benefit of getting to see a lot of schools that have done it well. We’ve seen some of that in the non-degree space in boot camps that do up-skilling and re-skilling, like learning to do software engineering in a set number of months. Those programs actually have built pretty robust career offerings and support because the point of it is not just to teach a valuable degree but to make sure that you are placed into a job with meaningful salary uplift. It’s been great to learn lessons from players like that.
Do you lend to undergrads that are juniors or seniors? [15:57]
Great question. We currently fund students within two years of graduation, but we’re always looking to expand. That includes all master’s programs and undergrad students who are in the later half of their programs. During COVID, we also expanded to support students in non-degree programs that are really high quality. It’s amazing looking back at when you and I first spoke years ago, when we were a single-product company focused on one specific market with our direct-to-consumer offering, and now we’ve expanded to three products, and nearly 10,000 students across degree and non-degree programs. It’s just amazing to see how much has changed.
Do you feel your degree in business was worth your investment in time and money, both out-of-pocket variety and the opportunity cost? Why or why not? [16:55]
I appreciate you asking. Candidly, I 100% think it was worth it. In the moment, it was a tough decision. As you said, I was in a private equity investing job and earning well, and I enjoyed the work. I made the leap, and business school, in so many ways, was an accelerant for this next chapter of my life where I was really able to surround myself with amazing mentors and peers who helped guide me as I built Stride. I’m still very close with a number of my professors. Our team is based in Boston, and I was just back there and met with Jeff Bustang, one of my professors who I did multiple independent projects with while in business school. It was great to catch up with him and share what I’ve learned and get his advice as we think about some additional growth factors.
I also am still very close with a number of my friends who are also founders coming out of business school. I feel like we’re on similar paths of building our businesses and growing our teams. I also got a lot of exposure to folks who became investors in Stride who were connected through the Harvard Business School Network, like Deborah Quazzo and others. That connectivity and bond is something that is hard to put a finger on exactly what makes it so special, but it really does work.
As a side note, something that’s pretty exciting is we actually have a Harvard Business School case that’s being written about Stride. It’s in the final reviews right now. A professor inbounded us about wanting to do a case that every first-year student starting with the upcoming enrolling class of 2023 will have to read. It’s a really special moment for me personally and for the whole team.
Was the Harvard Business School education valuable? [19:22]
I had the luxury of studying at Wharton for undergrad and then working in finance. For me, the classes that were the most helpful were the ones that I didn’t have exposure to before. Things like tech sales. It turns out so much of my job is really understanding how to structure deals and how to think about making the right approach with different types of partners across our ecosystem. Also, we had an actual class called Deals, where negotiation meets law and taught me how to think about credit structuring. Those were incredibly valuable. I also found a lot of the classes where we talked about not just the wins but also the failures that different entrepreneurs have had to be incredibly useful so that I did not repeat the same mistakes.
I think all of this really comes together in the way that they taught the business school class through the case method. That was completely different than what I experienced in undergrad, which was learning from a textbook or a PowerPoint deck. I found the case method to be fascinating because our peer set came from such different backgrounds. We had everything from people who were in the military to people who worked in the corporate arms of different companies across healthcare and energy and the like. For me, it was really interesting to be able to hear life lessons from folks who got to see it firsthand and to be able to absorb their lessons.
What do you see coming down the pipe for Stride? [21:25]
For us right now, we’re really focused on continuing to increase access for more students as we diversify our product set, expand into new types of programs, and go deeper with our existing students. We’re really thinking about education financing as one of the first big “purchases” that a student makes but how do we think about what else these students need going forward on their paths? There are really great tools like Mint to think about budgeting and financial wellness. What about when students open up a credit card? How do they think about the right features and benefits for them based on their financial position? A lot of this is through just really strong engagement and feedback loops from our own students to learn what else in their life roadmap Stride can support. At the end of the day, we don’t just want to be a provider, we want to be a partner with students.
What would you have liked me to ask you? [22:25]
One of the things that I think is really interesting to touch on is what I learned from the collaboration at HBS and how that’s impacted how I think about leading teams.
For me, what was really fascinating beyond just the case method was the types of ways that HBS got us to work in very high-functioning and tight-knit teams on a lot of different exercises. One of my favorites was the field class. They had us go abroad for 10 days and consult for a company. I went to Vietnam and consulted for a company that creates dairy products. It was totally out of my wheelhouse, but it was such an amazing experience. They taught us so much about understanding how to do launches with a team. You understand each other’s working styles. You really think about how each person is motivated and what they are trying to get out of the class. Some people wanted to just learn and be on the field while other people focused on getting the highest grade.
What are your motivations for being here, and how do you most effectively work with the team as far as knowing your skillset and being able to stay engaged? I think that’s really worked with my team. I myself have evolved a lot. I went from wearing a lot of hats to now having a full executive team. We tripled our team size over the last year. Now, if I’m the best in the room on any one topic, then I’m probably in the wrong room. I think so much of it is about knowing that you’re surrounding yourself with folks who have super high brilliance, low ego, and setting up the right environment for them to be open about how they work best, what they’re motivated by, and creating a conducive ecosystem for them. It’s been amazing taking those learnings and applying them to Stride.
Where can listeners learn more about Stride Funding?
Definitely check out the website at stridefunding.com and you can also email me at email@example.com with any questions you have. I would also love to hear people’s thoughts on what we’re building, what else we could do, and how to really make a dent here.