SoFi was founded on the business of helping high-earning graduates refinance their student loans. But perhaps ironically, CEO Michael Cagney thinks today’s record amount of student loan debt is a bad thing.
“I wish there were a lot less student loan debt out there,” Cagney said in an interview at Disrupt NY today. Part of the reason he believes so much debt exists is that students don’t get enough financial education before they go to college and agree to take out those loans.
“When you go to a school and take a loan out, no one explains what you can afford, how much money you’re going to make when you graduate and how much you’re able to pay back,” he explained.
Meanwhile, universities aren’t incentivized to provide that education because it’s in their interest to have students matriculate, and there’s no downside to the college when a graduate is unable to pay back their loans.
But if you find the right customers, the ballooning student debt problem could also be an opportunity, Cagney and his cofounders understood.
“When we were at Stanford, one of the things that was striking to us… was that no one in the Graduate School of Business had defaulted on a loan in 35 years, but they were paying 6.5%-7.5% in interest on those loans,” he said. “I thought we could provide a better experience to those people.”
They realized they could provide a better experience not just to those who wished to refinance their student loans, but also to those seeking other financial services. “If you’re 35, you’re probably unhappy with what you get from your bank, from your student loan provider, from your wealth management provider,” Cagney said.
With that in mind, the company is moving into other lines of business. It’s already released a mortgage product and today released its wealth management solution. The company also has plans to launch more traditional banking products later in the year.
“One of the biggest challenges that we have is we want to give our members a deposit account, but the only way you can structure that today is with a banking license,” Cagney said. “We have the ability to apply and we probably will.” That said, he didn’t the rule out possibility of finding other ways to offer checking, deposit and credit card services.
While SoFi has grown pretty dramatically over the last several years, the company is in no rush to IPO.
“We’re not in a rush to go IPO,” Cagney said. The company is well capitalized, he noted, with $1.9 billion backing it. Most importantly, according to Cagney the company is already profitable. Besides, no one ever benefits from providing forward-looking guidance on public offerings.
“I always get into trouble for giving timelines,” he said.