Student loan collectors have become notorious in recent years for abysmal service and allegedly illegal practices. With trust in these market giants hitting new lows, fintech startup CommonBond has decided to make its move into the sector. Today the New York-based company announced that it will start lending directly to undergraduate and graduate students at all nonprofit higher education institutions.
“Education finance is a massive industry, and we’ve just begun to scratch the surface,” says cofounder and CEO David Klein. Student loan debt passed $1.3 trillion last year, and continues to rise.
CommonBond, like Earnest and SoFi, made its name as a refinancing solution for borrowers who had graduated from top colleges and universities. Since its 2013 launch, the company has funded over $1 billion in loans.
But on the side, unlike its competitors, CommonBond has been offering direct student loans to MBA students at a select group of schools, including Dartmouth and Yale. At those campuses, to Klein’s surprise, the company quickly became the top private lender.
Klein attributes the rapid growth to CommonBond’s attentive customer service and slick modern technology. “This is something that a lot of people are clamoring for,” he says.
Now he and his team will have a chance to test that theory more broadly. Their loans will now be available to undergraduate and graduate students across the country, with the exception of those enrolled in for-profit or online-only institutions. Variable rates will be as low as 2.87% and fixed rates as low as 5.50%, for borrowers who enroll in auto-pay.
In addition, CommonBond has built tools to facilitate the involvement of a cosigner, which has been a pain point in traditional systems. (Parent co-signers will also help reduce CommonBond’s risk.)
Klein plans to first target students at those campuses where CommonBond has already been lending to MBAs, and expand from there. When financial aid offices send students information regarding their financing packages, CommonBond will be listed as an eligible private lender.
In the meantime, CommonBond’s competitors are moving beyond student loan refi; SoFi, for example, has introduced mortgages. Klein has similar aspirations—just not quite yet.
“It’s a safe bet that in 2018 you’ll see us expand beyond education finance,” he says. But for now: “We believe in the value of focus.”