CommonBond, one of the biggest of the second generation of startups tackling online lending, has launched a direct student loan product as it expands its footprint in the debt business.
The company is known for its strict qualification requirements for refinancing packages and with an initial focus on the high end of student lending (servicing only 20 — mostly ivy league — colleges and universities at the time of its launch), CommonBond has become a nascent force in the student loan refinancing business.
Now chief executive officer David Klein is turning the company’s attention to direct lending. It’s the last piece of the student lending puzzle that the company had yet to solve.
Other companies in the lending market, like Pave and Upstart, had approached college financing with a model that exchanged tuition money for a percentage of a student’s future earnings, but both have both pivoted away from equity financing to become straight personal lenders.
From the beginning, Klein says, CommonBond was going to approach student lending differently. The problem, was perceptual, he said. Both Pave and Upstart faced criticism of being business models supporting nothing more than a modern indentured servitude and it was negative press that neither company could shake.
Now CommonBond is trying its hand at student lending with variable rates that start at 2.87% annual percentage rate of charge and fixed rates that start at 5.50% (with a discount for autopayments).
Students can pay at a fixed monthly rate, through an interest-only payment, a full monthly payment and they always have the option to defer.
CommonBond also has a partnership with Pencils of Promise to offer in-kind financing for every student loan it issues.
The new product expands CommonBond’s direct student loan offering to students outside of the MBA programs which were the only loans it used to make to students. With the new lending product any student enrolled in undergraduate or graduate study can apply for a CommonBond loan.
New York-based CommonBond has also built a tool that walks students through the financial impact each different loan option will have on their finances over time.
While the loans are currently available to most accredited non-profit universities, Klein said that the company will not pay for tuition to for-profit universities, nor is the company extending its loans to people who wish to attend non-degreed certification programs… for now.
To date, CommonBond has financed over $1 billion in loans so far, and has raised over $78 million in equity financing from investors including Tribeca Venture Partners, Social Capital and the Neuberger Berman Group.