In 2010, four students at the Stanford GSB founded a company to address one of the biggest issues facing graduate students today: student loans. Upon entering the MBA program, the founders immediately realized that there is a substantial dearth of affordable financing options for students and that credit-risk was not being assessed appropriately with blanket interest rates. Top schools across the country offered an amazing and accessible group of credit-worthy customers whose financial needs were simply not being met by the current the market. To solve this problem, the team set out to attract alumni to invest in current students by offering loans at risk-adjusted rates, which both undercut the current student loan rates available and provided investors with above-market returns. With this, SoFi was born.
Overtime, the business model shifted to a refinancing model. As SoFi approached potential alumni investors, they realized that the younger alumns did not want to lend, but rather refinance their own student loans. A lightbulb went off and the SoFi team realized the potential to refinance alumni loans. At the time, there was virtually no refinancing market for student loans, providing a great market opportunity for alumni and students to connect in a lending community.
At the lunch, Steve discussed with the challenges SoFi faced while creating a two-sided market, in which alumni contributed capital to students from their alma maters, building small, localized peer-to-peer lending networks. SoFi began by building a strong alumni base of investors and eventually secured institutional investing partners in order to scale the business and address the growing demand for the product. As more funds became available to lend, the company quickly expanded its reach from five academic institutions (including MIT Sloan) to seven then 12 then 30. They then scaled to include law schools, dental schools, nursing schools, etc. In summary, Steve believes that SoFi’s key to success was having a very specific and well-defined scope early-on in its development.
With over $450 million in loan originations, SoFi is now the third biggest player in the peer-to-peer lending community, next to only Lending Club and Prosper. Yet, SoFi is still the only company addressing the education market. Additionally, SoFi has begun to expand its product offerings launching a mortgage product just this past February. This product was launched to address the needs to SoFi’s current borrower base, which tend to be well paid, young professionals in their late-20’s/early-30’s who are finding it very challenging to buy property in their expensive urban environments. Lastly, as entrepreneurs themselves, the SoFi team truly understands the financial woes of entrepreneurs. Thus, they’ve launched an entrepreneur program, in which SoFi offers loan deferment to borrower’s starting new companies.
In summary, SoFi is building a financial institution that is not tied to geography, but rather affinity, offering students a diverse range of financial products to help them manage the high cost of advanced education in an informed and pragmatic manner.
To learn more about SoFi and get a special deal on your loan refinancing visit www.SoFi.com/Spring!