The push to pursue four-year college degrees for white-collar jobs, which kicked into high gear in the 1980s, has left America 40 years later with a steep shortage of skilled workers who can weld, drive a semi, fix HVAC systems, and perform jobs that have long been known as “the trades.”
In a somewhat curious reversal, one Silicon Valley FinTech wants to fix that by helping those interested in these fields borrow the money they need to attend good trade schools.
Eric Menees, CEO and co-founder of FinTech Fynn, told PYMNTS’ Karen Webster that while he was pursuing advanced engineering degrees — and getting the lofty loans to pay for them — friends looking to borrow as little as $10,000 to attend trade schools couldn’t find a lender.
Perception has long been that these jobs are undesirable, but his team didn’t find a lack of interest on the part of workers. They found few loan sources to help people learn a trade.
Saying most lenders stop at FICO and Vantage scores — which most 18-year-olds don’t have — he said, “When we think about underwriting, it is very different. We don’t start with the student. We start with the job market and the outcomes.”
“We’re looking at funding schools and students going into these schools that train for trades that have a strong supply-and-demand mismatch,” he continued. For example, “There are 12 times more welding jobs than there are people to work them. That means that when a student makes it through a program, 9.9 out of 10, they’re getting that job.”
That means starting salaries in the $60,000 range for many trades on a loan that might be $15,000 to $20,000 — far below even in-state tuition for a four-year degree from a state college, and that student may not have a job waiting after graduation day.
Despite this, trade schools struggle to fill seats because these are not the educational loans the current system is set up to underwrite.
“The majority of these students are not in a position where a traditional lender would lend to them,” he said. “They’re young, have not built credit yet, and there’s not that federal aid that usually helps that demographic. So, [trade schools] end up with 30 of 100 seats filled, even though they had 300 applying. That’s the problem we exist to solve.”
Flush with an $11 million seed round and a $25 million debt facility, Fynn takes a novel approach to underwriting, starting with the field of work and ending with the student.
It’s an innovation in lending underpinned by a desire to make school loans truly inclusive.
This CEO from a working-class background who earned degrees in mechanical engineering, biochemistry and neuroscience, who worked on humanoid robotics with NASA, rehabilitative robotics with MD Anderson, and brain implants with DARPA, is passionate about restoring America’s lead in trades that keep the lights on, the water running, the trucks rolling, and so on.
“Our mission is to revitalize the trades, and in doing so, rebuild the middle class,” Menees said. “Part of our big focus is, How do we tackle this at a national scale? Right now, we are in 14 states. We’re expanding to half the country or more by the end of the year. That’s what a lot of this funding is going towards, helping with our growth and our expansion.”
Comfortable with the loan-to-earnings ratio of the trade workers they focus on — industrial, construction and manufacturing, allied health, and medical technology — Fynn makes sure the trade schools are legit, a process helped greatly by its highly experienced chief business development officer, Robert Park.
“He’s deployed $100 million in traditional loans into the trade space in the past. He’s been an owner-operator of trade schools. He’s got very close relationships across the country with this network of schools. They trust him, and it’s easier for us to close and sell to them. That’s been another huge advantage and blessing that we’ve had,” Menees said.
While the allure of four-year degrees and high-paying office jobs may have degraded the perception of what TV popularized as “the dirty jobs,” Menees said it’s not the fault of higher education.
“There definitely is this brain drain or this skill drain toward four-year universities, toward white-collar jobs, but from our perception and our experience in the market, it is not the primary driving factor,” he said. “It’s actually this less spoken-about thing [where] nobody wants to lend to an 18-year-old without any credit.”
It’s counterintuitive on a few levels, mostly the fact that these workers are in short supply and leave a program with certification equipping them for thousands of jobs that need workers urgently.
Should the student run into trouble repaying the loan, Fynn has it covered.
“A key differentiator for us is that every borrower is eligible for payment protection if they’re making less than they’re expected to make in their career,” he said. “What that can look like is knocking off up to 20% of the standard payment while their income is depressed. This is possible for the life of their loan as well, so if market conditions stay that way or whatever is causing this income depression, we’re still in their corner.”
Just coming out of stealth, Fynn is focusing primarily on the schools and markets, building a data model around students. It’s a new concept, and he concedes it’s “a big risk that any company will run. But right now, the schools have high enough grad and place rates that it’s not a huge issue for us.”
Working out pricing with the schools is a work in progress, and that’s where Fynn’s risk models still need refining.
“We take that big risk that would normally be shouldered by an individual and we spread that across institutions that can actually cover it, namely a school. Now we’re starting to talk to employers about that as well,” he said.
This enables Fynn to “go a lot deeper in the credit spectrum, which the schools are happy about as well. They gladly participate in some of the risk if it means that they’re able to fill their classroom two to three times more, because they exist to train.”