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SoFi Raising New Cash To Help Ease Students’ $1 Trillion Debt Burden

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Student lending service Social Finance is close to securing a new round of as much as $75 million, according to two investors familiar with the company’s plans.

The San Francisco-based company is one of a new generation of lending and consulting services backed by venture investors that are looking to help debtors better manage the almost $1.2 trillion in student loan obligations currently breaking the financial backs of America’s graduates.

Social Finance, which does business as SoFi, has already raised $77 million in its last round of venture funding back in 2012 from investors, including the Chinese social networking service Renren, Baseline Ventures, and DCM. According to the investors, SoFi will close on a new round with commitments totaling somewhere between $50 million and $75 million.  The company’s public relations firm did not respond to a request for comment for this article.

The company was founded by Mike Cagney, a former head of prop trading at Wells Fargo, and raised its initial financing in 2011 — a $4 million Series A funding with participation from Baseline Ventures and Innovation Endeavors, according to CrunchBase.

In addition to its equity haul, SoFi has been an adept borrower in credit markets, raising $152 million in a securitized loan offering which closed in December 2013.

The reason why the company is so good at tapping both equity and debt lenders is because of how SoFi vets its borrowers. The company lends to students from schools with low default rates and refinances those students at rates that are more commensurate with their credit risk, according to an article in LendAcademy. The profile of a typical borrower is a 28-31 year old, with an average annual salary higher of $125,000, and an average FICO of 740. (These kids are basically a lenders’ dream.)

It’s no wonder that the company can undercut rates offered by existing student loan programs, because it’s got its pick of a prime pool of borrowers rather than needing to lend to every student in the country.

SoFi offers fixed-rate loans at five-year rates of 4.99 percent to 5.99 percent, a 10-year fixed rate loan has a 5.49 percent to 6.375 percent APR, and a 15-year fixed rate loan has a rate of 5,99 percent to 6.74 percent APR.  A Federal Direct Stafford loan is at least 6.8 percent and a Direct PLUS loan was around 7.9 percent in 2012, by comparison.

SoFi currently has $400 million of loans outstanding, with 4,500 borrowers, according to a profile in Time published earlier this year, and it’s on track to lend over $1 billion by the end of the year by adding another 10,000 borrowers.

A slew of companies, including Student Loan Hero and SimpleTuition, are offering tools to help students get out from under the debt burden, but no one seems to have amassed the capital that SoFi is bringing to the market.