While Congress continues to wrangle over student loan interest rates, one company is quietly helping borrowers lower their interest rates, and also trying to make sure they will be able to pay them back.
SoFi is a social lending platform that brings together student loan borrowers, alumni and institutional investors. What makes it unique is that it doesn’t simply make loans. It also helps borrowers connect with alumni and other advisors who can help them succeed financially, increasing the chances that the loan will be successfully repaid.
Take Jose Guzman, for example, who graduated from The Wharton School of Business with an MBA in 2011. He had a combination of private and federal student loans, and as a result was making five payments a month. “It was a hassle,” he says. He was looking for a way to consolidate his loans when he received an email from his alma mater that talked about how SoFi may be able to help.
He was told that this was more than a loan program; borrowers would become part of a community of investors that also included alumni from a number of prestigious schools.
He refinanced his loans into a single loan at 5.99% for ten years, but he talks of that as if it’s just a side benefit. More important were the connections he’s made as he has tried to switch careers.
“That was the main selling point — the community,” he says. “I wanted to have access to alumni from several sources, not just one.” And he says the company has delivered with all kinds of networking opportunities. “I have attended investor lunches (and) have helped them with conferences where I serve as a borrower for the panel,” he notes.
This unique lending model is gaining traction with schools, investors and borrowers. In 2012, it made $100 million in loans to students from 78 schools. “Now we’re aiming to fund $750 million in loans for students and recent graduates,” says SoFi founder and CEO Mike Cagney.
Interest rates run as low as 5.49% for a five-year loan, 6.125% for a ten-year loan and 6.625% for a 15-year loan. “Our borrowers are saving an average of $5,600,” says Cagney.
Last fall, borrower Benny Joseph, a graduate of the University of Chicago Booth School of Business MBA program, noticed that mortgage rates were at all-time lows. “They were about half the rate that my student loans were at,” he says. But when he looked into refinancing, he bumped up against a wall. Since he had already consolidated his student loans using the federal student loan consolidation program, he was ineligible to do it again.
When he came across SoFi, he became intrigued by their mission. “I found them because I was looking for a lower interest rate but I joined them because of their mission to build a vibrant community,” he says. He refinanced his Grad Plus loans from a rate of 7.5% to 5.99%, but he kept his payment the same and, as a result, expects to pay his loan off a year faster.
But that wasn’t the biggest benefit.
Three months after he joined, SoFi announced the SoFi Entrepreneur program which provides big idea entrepreneurs with six months of loan forbearance, mentoring, networking opportunities and resources to help them raise capital and build their companies.
Joseph is the cofounder of GoodApril.com, a website that automates tax planning. It helps taxpayers avoid underpaying or overpaying and uncover tax saving strategies they can take advantage of. He entered the contest, and was selected to be SoFi’s first entrepreneur to go through the program.
“That kicked off a lot of awesome things,” he says, including mentorship from successful serial entrepreneurs and a “miniature demo day with investors.”
“I am just really impressed with the community aspect of it,” Joseph raves. “I know people are looking to save a ton of money but I think there is more value connecting with people who are interested in seeing you succeed.”
“This is a great opportunity,” agrees Guzman. “I know there is some cost savings but if you look at the big picture, this a great community to tap on an ongoing basis. These are all high caliber individuals who will be the next business leaders.”
Paying it Forward
Both Guzman and Joseph plan to become investors someday and give back to the next generation of borrowers.
When they do, they will become part of SoFi’s efforts to “bring some sanity” back into student loan lending. “We’re big proponents of financial literacy and of school accountability,” says Cagney, “and we don’t have enough of either of those today. We are spending way too much talking about loan rates and not enough talking about why students end up with tens of thousands of dollars in debt to begin with.”
More from Credit.com