Reforming Student Loans

People wanted to know who was on the other side of the table According to a Poets Quants article, Disrupting The MBA Loan Market, Mike Cagney, Sloan Fellow at Stanford GSB, saw some major problems with the current student loan system and decided to do something about it. With school loan default rates as high as 18% (as is the case for the U. of Phoenix), Cagney knew that the trillion dollar industry†¦[was] classically broken†¦[and] definitely needed disruption. Cagney, who had 15+ years experience in trading derivatives and wealth management, created SoFi (which stands for Social Finance) to address this broken market. Social means three things to people, says Cagney. It means social impact, social communities, like Facebook, and social media, like Twitter. What they have in common is that they are transparent, local and interactive. The banking system is inherently anti-social. In Cagneys business plan, social will meet finance. Heres how the SoFi lending system works: MBA alumni lend money to MBA students with a fixed loan rate of 6.24% that then drops to 5.99% after graduation for those who agree to automatic payments. Also, the SoFi loans do not have origination fees. This is compared to the 1% origination fee and 6.8% loan rate of the Stafford loans and a 4% origination fee on a 7.9% fixed rate for the federal Direct PLUS loans. By using SoFi loans, someone who borrowed $100,000   could save almost $23,000 in interest and origination fees. One of the advantages of Cagneys social loaning system is that it places a face with the name, or rather, it provides a name to begin with. People wanted to know who was on the other side of the table, he says. And now they can. This social thesis allows borrowers to get to know their lenders through Facebook or LinkedIn. Some relationships even develop into that of mentorship. The SoFi loans, which were once available only at Stanford, are now available to students at more than 30 business schools including Yale, Wake Forest, and Babson. Graduates can even refinance existing loans at SoFis rates, saving an average of $9,600. Cagney hopes to soon expand the lending program to international students as well. See the SoFi website for more details.   Accepted.com ~ Helping You Write Your Best //