SoFi is turning the student loan market upside down with a mission to help borrowers mired under the weight of student debt.
The company, founded at Stanford University in 2011, aims to get wealthy alumni to lend to the next generation of graduates at rates that are lower than those offered by either private or federal student loans. Variable rates are as low as 2.94%, and fixed rates are as low as 4.99%.
SoFi currently works with graduates of 100 schools, and recently secured $500 million in financing to continue expansion. Interesting to note that one of the companies helping to fund SoFi is ECMC, the student loan guarantor.
What’s interesting about SoFi isn’t so much the refinancing of student loans, but rather how the company is leveraging the power of social media as part of its business model. Students are matched with potential lenders based on shared interests, and alumni act as informal mentors to help connect their borrowers with job opportunities.
By using the social angle, the SoFi lenders are maximizing their chances of getting paid back. Lenders help borrowers get jobs, which in turn enables those graduates to repay their student loans.
About 3,000 students have signed up for a SoFi loan so far, and astoundingly there have been no defaults to date. It’s a small sample of borrowers from only the best schools, but the idea has massive appeal.
There aren’t any current plans to expand SoFi to more schools right now because the founder is concerned about schools charging more for the education than the value provided to graduates. That’s also telling, I think.
It remains to be seen as to whether SoFi can make a huge dent in the world of student loans, but the company’s vision may well serve as a model for alumni networks of other schools to do something similar.
As for students entering colleges and graduate schools, the question of the vibrancy of alumni networks may need to be addressed before the start of classes.