US student loan provider Social Finance (SoFi) has raised $77.2m in Series B funding led by seed stage-focused Baseline Ventures and joined by early stage venture firm DCM and China’s largest social networking site Renren.
SoFi gives students access to lower loan rates than Federal Direct and PLUS loans with similar borrower protections by fostering social and economic connections with alumni investors. The new capital will be used to help SoFi grow its alumni investor base and reach new student and graduate borrowers as it expands beyond 78 schools this year.
Located in the Presidio in San Francisco, the company was started by a team of Stanford Graduate School of Business students back 2011. SoFi’s inaugural loan programme was a $2m pilot at the GSB. Since then, SoFi has moved toward becoming a national lender via state registration, created a broker dealer, expanded its product set to include both in-school and consolidation loans, raised significant capital to fund loans and expanded its presence to more than 78 schools nationwide.
“With more students applying for loans for post-secondary education coupled with state budget cutbacks for higher education and a federal loan market that can punish good borrowers, the student loan and debt crisis is getting worse before it’s going to get better,” said Mike Cagney, CEO of Social Finance. “Through SoFi, we have been able to create a whole new market that gives students better alternatives to fund their education while strengthening ties to their alumni community.”
To date, SoFi’s lending program is available in 78 schools ranging from large universities such as Stanford and University of Michigan to smaller colleges such as Smith and Swarthmore. It will expand beyond 78 schools this fall. SoFi has generated more than $60m in loan applications and is on a path to commit more than $200m in student loans in 2012.
“When taking the current and foreseeable macro environment into account, there is a massive opportunity for SoFi to disrupt the entire finance market,” said Steve Anderson, founder of Baseline Ventures. “Alumni across the country want to be more involved with their universities and many have savings sitting on the sidelines earning no interest. At the same time students need lower loan rates to make college more affordable and need help with career decisions and mentoring. SoFi makes the economics work for everyone: students benefit from lower rates and alumni support, and alumni earn better returns and add value to their schools through SoFi’s community lending engagement model.”
In March, the Consumer Financial Protection Bureau announced that student debt had passed $1tn. In addition, a recent report from the Federal Reserve Bank of New York revealed that the delinquency rate for student loans, which is currently at 8.9 per cent, increased during the second quarter of 2012. This compared to the delinquency rates for mortgages (6.3 per cent), credit cards (10.9 per cent) and auto loans (4.2 per cent) which all decreased.
“There are very few companies that do social good while also leveraging next generation financial and social networking services,” said David Chao, co-founder and general partner, DCM. “Student loans are a major national issue that needs to be resolved. Through SoFi’s unique approach they are not only helping students through financial literacy and reducing their loan rates, but also enabling alumni to connect with their alma mater and truly give back to their community.”
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