SoFi secures funding to help students avoid debt pitfalls

Can "innovative banks" assist graduates faced with the prospect of lifetime debt?

San Francisco-based startup SoFi hopes that social media will help graduates from sliding into levels of debt which cripple their lives.

SoFi is expanding at a rapid rate. After raising $77 million in funding last year, the firm has been granted an additional $41 million from Bancorp, the face behind the "innovative" Bancorp Bank. The financial services holding company's contribution comes days after SoFi secured a $60 million warehouse line from Morgan Stanley.

Bancorp is willing to help SoFi with its funding efforts. Since April last year, the startup has touted college and university graduate loans at better rates than those offered by private banks, federal Stafford and PLUS loans. Over $100 million has been borrowed to date.

The startup describes itself on its website as a way to connect students and alumni through a dedicated lending pool and an original social community approach where students, alumni and schools all benefit.

"Alumni earn a compelling double bottom line return, students receive a lower loan rate than their private or federal options, and both sides benefit from the connections formed."

The idea behind the startup is simple: Through social media, SoFi matches alumni with money to spare with current students faced with crippling levels of debt. Research suggests that if paired with real people rather than faceless institutions, borrowers are less likely to default -- and so fixed interest rate of 5.9 percent are standard for SoFi-backed loans.

CEO Mike Cagney commented:

"Ultimately, the alumni are taking the default risk. But if a student defaults, their alumni network will see to that -- their reputation will be at risk."

Read More: VentureBeat

Image credit: SoFi

This post was originally published on Smartplanet.com

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