Alumni-sourced student loans are one of the newest financial aid products MBA candidates have at their disposal. Students can now see the university communities where the concept is gaining traction.
Since November, SoFi, the largest alumni-sourced lender in the U.S., has filed a series of documents with the Securities and Exchange Commission to register the loan pools it has formed around various school communities. The latest filing came last week and shows the budding loan pool for the Yale University community.
Alumni-sourced loans are generally simpler and cheaper than other options, requiring little more than a credit check and enrollment verification. SoFi’s fixed interest rate last year was 6.24 percent—less if you signed up for automatic payments—which compares favorably with federal Stafford loans and federal Direct PLUS loans. But rates for the 2013-14 academic year haven’t been announced.
Loan providers such as SoFi tend to target groups of students that have historically low default rates—such as MBA candidates from Ivy League schools. At Stanford, Harvard, Penn, and Northwestern, where SoFi started, 1.5 percent of students or fewer defaulted in 2010, according to the most recent Department of Education data. As a result, alumni of those same institutions see the investments as low risk. SoFi initially claimed it pays its alumni funders a 5 percent return, which handily beats money-market and savings accounts, but no longer publishes returns.
SoFi is active at nearly 80 schools but has registered loan pools at 14. Here are the loan pools SoFi has registered so far, ordered by the dollar value listed on each SEC filing:
New York University: $3,000,000
Duke University: $2,075,000
Columbia University: $1,000,000
Northwestern University: $1,000,000
University of Michigan: $1,000,000
Rice University: $500,000
Harvard University: $450,000
Dartmouth College: $250,000
University of California, Los Angeles: $200,000
Massachusetts Institute of Technology: $100,000
Stanford University: $100,000
University of North Carolina: $100,000
University of California, Berkeley: $75,000
Yale University: $25,000
The dollar values of the loan pools are effective as of the date of the filing and do not reflect all funds raised to date from investors interested in lending to students at each school, says SoFi’s Chief Financial Officer Nino Fanlo. “These are fractions of what we’ve actually raised,” Fanlo says. “We have raised much more than this and we expect those figures will continue to grow significantly over the next 90 to 120 days.”
Fanlo says SoFi will likely have a clearer picture of the size of each school community’s loan pool before June. The pools are expected to fund refinanced as well as original student loans heading into the 2013-14 school year.
Though the dollar values of each pool aren’t final, the SEC registrations offer a glimpse of the alumni communities with which the concept has resonated.
The majority of SoFi’s borrowers are MBA students or MBA graduates looking to refinance. However, the company is expanding into other groups such as graduate science and engineering candidates as well as some undergraduate students, Fanlo says.
Another alumni-sourced lender is also making progress. CommonBond, founded by three alums of the University of Pennsylvania’s Wharton School, expects to lend up to $100 million in 2013 across 20 MBA programs, including Wharton, Harvard Business School, MIT’s Sloan School of Management, Stanford’s Graduate School of Business, Columbia Business School, Yale School of Management, and the University of Michigan’s Ross School of Business, according to a statement from the company.