The US student debt load currently stands at $1.4 trillion, which roughly accounts for 10 percent of all outstanding debt. It has reached a crisis proportion with over 51% students having debt greater than $50,000. The growth in cost of tuition has outstripped any inflation metric and analysts believe this is holding back new generations from going to college.
This pain point is well understood by the fintech community with online lenders stealing a march over traditional banks in servicing the millennial generation. With a full suite of student loan products, CommonBond has emerged as one of the leaders of the student loans segment. Lending-Times got an opportunity to catch up with David Klein, Co-Founder and CEO of CommonBond, where he explained the vision behind the student loan juggernaut.
The Story Behind CommonBond
Klein went through the painful ordeal of funding his tuition for Wharton. The entire process was confusing, rates were excessive, and customer service was non-existent. He recognized the massive gap and launched the CommonBond platform with two co-founders he met at Wharton. Together, they created a pilot student loan program at the school. The positive response spurred them to expand and focus on providing the best student loan experience in the country. Within two years of launch, CommonBond became the No. 1 private lender in many schools. The comprehensive bouquet of products offered by the company has made them the go-to resource for students, graduates, and businesses.
The Founding Team
David Klein, Michael Taormina, and Jessup Shean founded CommonBond in November 2012 as an online lending platform to connect graduate students and investors. Prior to CommonBond, Klein worked as director of strategic planning and business in consumer finance sector at American Express. Taormina started his career with CommonBond and was associated with the company till January 2015 when he left to start another venture. Shean was associated with the company for one year and later on shifted to Greenhill as Vice President.
Funding and Securitization
CommonBond has raised around $1 billion in funding across equity and debt. It has raised around $78 million in equity with $30 million raised in Series C from a group of investors led by Neuberger Berman Group. It also managed to secure $300 million in debt financing in July 2016. The startup has been performing strongly on the securitization front, as well. Recently, the company closed $231 million in securitizations of refinanced student loans. The securitization received a rating of Aa3 by Moody’s in addition to AA from DBRS. The fourth issuance for CommonBond was its largest securitization and was oversubscribed by more than three times.
The CommonBond Product
CommonBond offers a full suite of student loan products including loans for current students, refinancing loans for graduates, and an enterprise solution. CommonBond for Business Platform, the enterprise solution, enables employers to offer student loan benefits to their employees. With 80% of millennials wanting to work for a company that helps them with their loans, this benefit has the chance to grow into the golden standard in the industry.
But the company is not all about innovation in products. It’s the right blend of advanced technology, competitive rates, and award-winning customer service that has made CommonBond a force to reckon with in the student loan segment.
CommonBond has also incorporated a “one-for-one” social mission: for every loan it funds, it also funds the education of a child in need. This social endeavor proves the company is connected to the community at large. The company has entered into a partnership with Pencils of Promise to this effect.
Acquisition of Gradible
In July 2016, CommonBond acquired Gradible, a personal finance platform. The acquisition was done largely to incorporate Gradible’s proprietary student loan evaluation technology into their CommonBond for Business platform. This integration will enable the online lender to expedite their new platform as the “401(k) for student loans.” The Gradible algorithm will assist borrowers in choosing the best repayment option for their student loans and will allow employers to make a contribution to the employee’s student debts, similar to their contribution towards the employee’s 401 (k).
Since its inception, the company has originated over $1 billion in loans. Its APR usually ranges from 2.87% for variable to 5.5% for fixed rate loans for students in schools. It offers multiple tenures and flexible repayment options so that borrowers can customize the loan as per his unique requirements. The company claims that the borrower can save over $24,000 by refinancing his loan from CommonBond. Its USP is its ability to analyze the creditworthiness of the borrower and offer them lower rates than traditional lenders.
Being a student is stressful enough, and adding the pressure of arranging funds for further studies can be a nerve-racking experience. CommonBond is the only company that helps a borrower at every stage of the student debt cycle. Its borrowers range from high school students looking for higher education loans, graduates who want to refinance their loans at lower rates, parents looking to refinance their children’s loans, and companies that wish to attract and retain the best talent by contributing towards their student loans.
Klein believes that the online lending industry has reached maturity in many ways. First, only the companies that possess both technologically innovative products and a loyal customer base can survive in the long-term. Second, more and more service providers are solely focusing on serving online lenders. This has created a positive ecosystem where the benefits accrue to the final customer. Third, with both fintech companies and traditional banks understanding each other’s importance in moving forward, the industry is now witnessing more collaboration between the two.
CommonBond is planning to stay focused on education finance with its refinancing loan options, loan options for current students and the CommonBond for Business platform as main product categories. Its razor focus on customer service differentiates it from not only traditional banks but also me-too online lenders. It has an in-house “Care Team” which even sends out cookies to students during their exams. CommonBond has created a niche for itself in the student loans category; its solution for businesses is the company’s trump card and a key differentiator.
Written by Heena Dhir.