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SoFi Secures $77 Million in Financing

Adam Rust's picture

Posted September 13, 2012

Social Finance ("SoFi") says that it has raised $77 million in financing from two venture capitalists to help develop their new student loan product.

The investment came from Baseline Ventures, DCM, and the Chinese social media venture group RenRen.

A SoFi loan is sourced from cash provided by an alumnus. For example, a student seeking a loan to attend Swarthmore would be able to tap a Swarthmore alum via SoFi.

A SoFi loan is fixed with an interest rate priced lower than PLUS or an unsubsidized federal direct loan. Currently their loans bear a rate of interest of 6.49 percent - about 30 basis points below a Stafford loan. Rates drop if you make payments while in school or if you can refinance an existing loan after graduating. But the loans are not without risk. Students can arrange for loans of as much as $200,000.

SoFi could open a lot of doors for students, particularly those with well-off alumni networks. SoFi's home page profiles an alumni lenders from Northwestern University's Kellogg School of Management. SoFi's first loan was made to a business student at Stanford. MBA students at top 20 schools are probably a fairly good bet for repayment. But how will SoFi work at schools with less well-off alums? Would SoFi have worked at a private liberal arts colleges where most of the graduates go into fields such as social work, the clergy, or teaching?

SoFi says that students in default will face the same rules as those with federal loans. SoFi will garnish wages or other payments.

One key factor will be how the relationship between borrower and lender is defined. SoFi may be considered merely an agent acting to broker a loan or they might be classified as the lender.

One more intriguing dimension of this idea is the means for investment. An alumnus may use his or her 401 (k) as the source for investment.