Solving the Student Loan Problem for International Students

U.S. international students

The most common and pertinent issue facing an international student looking to study in the United States is securing credit for various needs like tuition, credit card, and buying a car. The stress of settling in a new country coupled with finding the best loan option can be a daunting task. Nomad Credit realized there […]

U.S. international students

The most common and pertinent issue facing an international student looking to study in the United States is securing credit for various needs like tuition, credit card, and buying a car. The stress of settling in a new country coupled with finding the best loan option can be a daunting task. Nomad Credit realized there is a void with regards to helping international students and visa holders (H-1B, L1, etc.) find credible lenders, and vice-versa. Nomad Credit’s search engine provides comparable options for the credit seeker to compare and decide the best possible loan option for them. It functions as a pure marketplace.

International Student Analytics

The number of international students in the U.S. grew by 7.1% and crossed the 1 million mark in the 2015-16 academic year. China (328,547) is the biggest contributor followed by India (165,918), Saudi Arabia (61,287), South Korea (61,007) and Canada (26,973). In total, there are approximately 5 million international students around the world, and by 2025, the number is expected to reach 8 million.

Source: NewAmericanEconomy.org

Economic Benefit of International Students

Source: NAFSA.org

As per the latest NAFSA’s analysis, 1,043,839 international students contributed $32.8 billion and supported more than 400,000 jobs in the U.S. economy during the 2015-16 academic year. That means for every seven international students enrolled, three U.S. jobs are created.

Source: NAFSA.org

All of the above highlights the definitive impact international students have on the economy of the host nation. But the hurdles these students face in accessing credit is remarkable. Though they are a riskier credit bet as compared to local students, shutting down a multi-billion dollar market is just not feasible.

Introduction to Nomad’s Specialized Marketplace

Nomad Credit has its headquarters in Chicago and was launched in 2017. Founder and CEO Brian Hoffman initially launched a plain-vanilla education loan company, following SoFi’s footsteps. But soon the company’s focus changed from refinancing student loans to funding international students. It aims to find the right financial product for international students and/or visa holders currently or planning to live in the U.S. The main visa holders it serves are F1, J1, L1, and H-1B visas.

Prior to Nomad Credit, Hoffman worked as an analyst at Sagence, a management advisory firm. In the beginning of this year, the company managed to raise $125,000 in angel funding.

Business/Revenue Model

The underlying business matrix is similar to already established fintech loan marketplaces like Lending Tree or Credit Karma. Nomad gets paid from partner lending companies for providing leads or customers. Payment structure may vary as it also deals with lenders based out of the United States, but could include a percentage fee, fixed fee per customer, monthly fee, or fee per led. This flexibility in payment options is necessary for serving and partnering with multiple lenders in different parts of the world.

The company has invested its resources to help find international students find the right combination of lender, insurer, and other financial services depending on their needs. It uses a simple questionnaire focused on the school, degree, original location of the student, and other personal information.

Partners and Unique Selling Proposition

The young company has managed to stitch up multiple partnerships with 11 financial partners, 2 insurance companies, and one international payments company. Adding insurance to its list of services was a no-brainer as international students are simultaneously looking at travel, medical, and renter insurance.

Though there are established players in the overall education and marketplace segment, such as Credible and Lending Tree, what sets Nomad Credit apart from its competitors is its specialization on becoming the one-stop shop for international students. It is the only company that is directly dealing with the U.S. as well as Indian lenders and is in the process of onboarding Chinese lenders. Though there is little competition from traditional lenders in India, well-funded Indian tech startups like BankBazaar are also turning their attention to student loans.

Nomad Credit’s Ideal Customer

Though the company is only 4 months old, it has managed to generate a lot of interest among international students while website traffic has been increasing two- or three-fold every month. It uses various marketing tools in India like advertising through partnerships, using paid ads, and blogging, and will be adding a student forum soon.

Anyone from Asia or African country coming to the United States to get an advanced degree like MBA or M.Eng (Masters in Engineering) is a prospective customer. Lenders prefer students who are studying MBA or M.Eng because those are highly employable and lucrative degrees, and there is lesser chance of default.

Though the company is based out of the United States, it has consciously decided to serve the entire international student ecosystem and not just students looking to come to the U.S. It has originated a lot of loans for students from India going to Germany or Singapore for higher studies.

Future Headwinds and Goals

Sallie Mae funds almost 95% of the U.S. student loan market. This has stifled innovation and made it imperative that Nomad targets markets where government entities are not the biggest players in student loans. Massive markets like India fit the bill; there is a lot of potential as the majority of the market is still untapped. That is the reason why this young startup sees more value in going after Asian countries.

Once the company is able to establish a firm footing in India, it wants to further expand into China and Nigeria. It aims to form partnerships in more and more countries so that it is able to serve a wider range of the population. Moving forward, it wants to further improve its technology as well its products so that it can cater to people from different cultures with unique needs. Integrating multiple languages into the platform is an important step toward that vision.

There are roughly 5 million international students today. They have more than doubled since 2000 and represent a hundred billion dollar opportunity for the financial services industry, currently being overlooked due to the fragmented nature of the customer base. Nomad Credit has been able to envisage the power of uniting this global industry on one platform and with funding and proper execution can actually target one of the last few untapped pockets of the alt-lending industry.

Authors:

Written by Heena Dhir.

Allen Taylor

Alternative Lending and Cryptocurrencies

cryptocurrency lending

P2P & marketplace lending have had a profound impact on millions of individuals and small businesses around the world which had been left “credit-deprived” by banks in the wake of the 2008-09 financial crisis. Alternative lending startups like Lending Club, Prosper, and OnDeck pioneered a new form of lending that eliminated the middleman (i.e. the bank). […]

cryptocurrency lending

P2P & marketplace lending have had a profound impact on millions of individuals and small businesses around the world which had been left “credit-deprived” by banks in the wake of the 2008-09 financial crisis. Alternative lending startups like Lending Club, Prosper, and OnDeck pioneered a new form of lending that eliminated the middleman (i.e. the bank). The effect has been tremendous with Morgan Stanley predicting P2P lending to reach a global size of $490 billion by 2020. Similarly, the birth of block chain and Bitcoin in 2009 was an unheralded affair. The cryptocurrency remained in the fringes until 2014 when it burst onto the global stage as its value rose exponentially. It now commands a value of $2,285 per Bitcoin as compared to a value of approximately $1 in February 2011.

Bitcoin has a total market cap of almost $40 billion. Even Warren Buffet would be proud of such a return. Till now, both of these fintech revolutions (Bitcoin and P2P lending) had been operating independently without much interaction with each other. With the advent of Bitcoin-focused alternative lenders like Bitbond, BTC Jam, and BTC POP, we are seeing the congruence of these two technologies for a more sophisticated lending product.

Let’s analyze how Bitcoin will be able to change the alternative lending landscape:

Branching out globally

When you lend in one single country, you have one-sided exposure to the country’s economy. So the default rates tend to follow the economic cycle of that particular nation. Lending internationally diversifies the country’s risk.

All alternative lenders, such as Prosper, Zopa, and Lending Club, let you invest in borrowers in your own country. If, as an American, you want to lend in the UK, the lender would have to bear the currency exchange risk. On the other hand, this is not the case when the loans are made and paid in BTC; it would diversify the loans geographically, and a lender can have borrowers from all over the world without having to take any currency risk. The diversification in itself is something of immense value as it allows sophisticated high net worth investors to de-risk their American holdings by investing in a global portfolio of borrowers.

Fees

Even if you are comfortable taking on the currency risk, welcome to the world of forex exchange where you will have to shell out 2%-3% every time you convert. This is especially true for smaller amounts as is prevalent in the alternative lending market. So, if a borrower is able to take advantage of the lower rates available in the US, he still ends up in the red as he has to pay 2% each (i.e. 4% combined) when he converts his local currency to USD for paying his loan, and vice-a-versa. Any superior returns generated by diversifying to another country would be gobbled up by your bank when it converts that Indian Rupee or British Pound into the US Dollar.

In contrast, the transfer changes for Bitcoin are a paltry 0.06%. It makes a lot of sense to execute cross-border transactions via Bitcoins to leverage this clear discrepancy in conversion rates. It allows the profit to go to the real risk-taker (i.e. the cross-border lender).

Sans a Bank Account

Bitcoin can work without a bank account; it only requires an internet connection. This has the opportunity to democratize lending as banks would not remain the sole custodians of delivering financial services, especially in developing countries. In many Latin American countries, the penetration of bank accounts is less than 30%. The Internet in comparison has been spreading like wildfire with 63% penetration in Latin America. Bitcoin lending is possible to that additional 33% of the population, which is otherwise totally disenfranchised from the formal economy.

Tackling Bitcoin price fluctuation

One major issue faced by Bitcoin lenders is the volatility experienced versus other currencies. When the Bitcoin prices rises against a fiat currency like the euro or dollar, the borrower needs to pay more than the initial face value of the loan (when denominated in his country’s fiat currency), and vice-a-versa. This exchange rate fluctuation would not be important if the borrower’s source of income is also Bitcoin. But as 99% of trade is still in fiat currencies like the dollar and euro, there is major risk involved for both lenders and borrowers.

To take charge of the exchange rate fluctuations, P2P platform Bitbond offered a loan type where the base value is denominated in US dollars. The loans are pegged to the Bitcoin vs. USD exchange rate for monthly installment. The value of the payment is held constant in USD. The number of Bitcoins that is to be repaid fluctuate along with the exchange rate.

Regulation

There are multiple closed markets in the world which are not accessible to outside investors. China is the prime example. The regulatory environment in developing countries like India and China are so onerous for a foreign investor that they give up on the entire market. Thus, over-zealous regulators end up harming the consumer, the so called benefactor of such regulations, in the first place.

Without access to credit, the borrower loses an opportunity to grow and enter a formal credit economy. Bitcoin sidesteps all these issues. Being a stateless currency, there is no regulator, and you just need an internet connection to take part.

Conclusion

Alternative lending is now mainstream. Bitcoin and other cryptocurrencies have captured massive investor interest and are on their way to disrupting how currencies and many financial services work. Bitcoin lending is the next stage of financial evolution and will allow alternative lending to grow roots across the world. It will allow for faster and cheaper transactions on one side; and as more trade gets denominated in Bitcoin, it will remove the inherent currency risk evident in all cross-border lending. The most important thing is that it removes government regulators and mega banks as gatekeepers to capital. This autonomy is the biggest innovation of Bitcoin lending.

Author:

Written by Heena Dhir.