Lending Club banners hang on the facade of the New York Stock Exchange for its initial public offering, . Photo: Don Emmert/AFP/Getty Images

Each lending startup claims it has a unique strategy to drive down interest rates for borrowers and lower risks for investors. Upstart’s secret sauce is its academic algorithm, which Girouard said is inspired by Google’s own methods for hiring recent college graduates. “Based on what you studied, where you went to school and how you performed, we’ve built a statistical model that predicts whether you’ll continue to be employed over the term of the loan,” he said. “Going unemployed is one of the principal reasons why people default on loans.”

Girouard insisted the company’s approach doesn’t favor Ivy League graduates with degrees in high-earning fields, including engineering or medicine, while punishing less financially illustrious candidates, such as English majors from public universities. “It’s not at all an elitist thing,” he says, noting that while 95 percent of Upstart’s borrowers have college degrees, only 5 percent went to what he calls a “fancy” school.

“This is a whole demographic of people that are unfairly treated, in discount title loans Rhode Island our view, by the credit system,” he said. “We’re using as much data as we can to give the best possible loans to every one of them.”

Charles Newport, the Upstart borrower, said the company’s academic emphasis appealed to him. He attended Indiana University’s Kelley School of Business and holds a well-paying job, but none of that seemed to help lower his credit risk in the eyes of traditional lenders. “You shouldn’t be pushed into a one-size-fits approach. There are different factors that should matter,” he said.

The focus on academic achievement has sparked some concern among consumer advocates. They say they worry any model based on college performance could inherently favor white applicants over other racial groups, since the majority of young degree-holders are white. Among 25- to 29-year-olds with bachelor’s degrees in 2012, 69 percent were white, while 11 percent were Asian, 9 percent were black and 9 percent were Hispanic, Pew Research Center reported last year.

“My position on all these companies is . they must make sure their credit model does not discriminate against any protected class,” said Ed Mierzwinski, the federal consumer program director at the U.S. Public Interest Research Group in Washington. “I hope they’re not developing models that use proxies for what would otherwise be illegal.”

Girouard said that’s not happening at Upstart. “Using tools provided by the Consumer Financial Protection Bureau, we closely monitor — and can show — that our model doesn’t discriminate against any borrower on the basis of race, or any prohibited characteristic,” he wrote in an emailed response. “To us, fair lending isn’t just regulation — it’s a concept we fundamentally believe in.”

Alternative lenders, however, aren’t subject to all the same regulations that govern bank operations, and the speed at which online lending has surged is giving regulators pause.

Upstart and other online lenders follow the same federal lending laws as mainstream banks, which require disclosure of loan terms and nondiscrimination

In June, the U.S. Treasury Department announced it was opening a study of online marketplace lending to boost the public’s understanding of how such firms operate, and to determine “how the financial regulatory framework should evolve to support the safe growth of this industry,” according to Treasury’s request for information.

Paying a lower-interest installment loan, by contrast, can in some cases improve a credit score

While Upstart’s loans give borrowers a short-term boost, Girouard said the company’s ultimate aim is to help younger people improve their financial standing over the long haul. Racking up high-interest credit card debt, for instance, can hurt a borrower’s ability to secure favorable rates for mortgages or car payments in the future. By helping millennials pay for coding boot camps or move for a new job, Upstart also is enabling borrowers to take steps to accelerate their careers, he said.