Harvard | Mr. Tech Start-Up
GMAT 720, GPA 3.52
Darden | Ms. Inclusive Management
GRE 313, GPA 2.9
Stanford GSB | Mr. Mountaineer
GRE 327, GPA 2.96
Harvard | Mr. MedTech Startup
GMAT 740, GPA 3.80
Stanford GSB | Mr. SpaceX
GMAT 740, GPA 3.65
Harvard | Ms. Comeback Kid
GMAT 780, GPA 2.6
Stanford GSB | Mr. Failed Entrepreneur
GMAT 750, GPA 3.7
Stanford GSB | Mr. Latin American
GMAT 770, GPA 8 of 10
Columbia | Mr. Oil & Gas
GMAT 710, GPA 3.37
Yale | Mr. Yale Hopeful
GMAT 750, GPA 2.9
Stanford GSB | Mr. Nuclear Vet
GMAT 770, GPA 3.86
Harvard | Mr. Deferred Admission
GRE 329, GPA 3.99
NYU Stern | Mr. NYC Consultant
GRE 327, GPA 3.47
NYU Stern | Mr. Brolic Bro
GRE 305, GPA 3.63
Tuck | Mr. Running To The Future
GMAT 720, GPA 3.5
Rice Jones | Mr. Simple Manufacturer
GRE 320, GPA 3.95
Stanford GSB | Mr. JD To MBA
GRE 326, GPA 3.01
Kellogg | Mr. Pro Sports MGMT
GMAT GMAT Waived, GPA 3.78
Berkeley Haas | Mr. Real Estate Developer
GMAT 740, GPA 3.12
Tuck | Mr. Mega Bank
GMAT 720, GPA 3.3
London Business School | Mr. Commercial Lawyer
GMAT 700, GPA 3.7
McCombs School of Business | Mr. Microsoft Consultant
GMAT N/A, GPA 2.31
Columbia | Mr. MD/MBA
GMAT 670, GPA 3.77
Harvard | Ms. Tech Impact
GMAT 730, GPA 3.8
Harvard | Mr. Data & Strategy
GMAT 710 (estimate), GPA 3.4
INSEAD | Mr. Dreaming Civil Servant
GMAT 700, GPA 3.2
Tuck | Mr. Tech PM
GMAT 710, GPA 3.3

Disrupting The MBA Loan Market

The idea was hatched in Mike Cagney’s “Evaluating Entrepreneurial Opportunities” class at Stanford University’s Graduate School of Business. At the time in 2010, Cagney was a Sloan Fellow, taking a year off from an often frenzied 15-year career in finance to develop a business.

At Stanford, Cagney found himself surrounded by students who had heavily borrowed money to finance their degree. Roughly 65% of the MBAs at Stanford take out student loans, with the average debt burden of $77,600 at graduation. At some business schools, including Wharton and Columbia, the average debt is now in six figures.

MBA students, moreover, had agreed to pay interest rates that were essentially the same as those charged to students at any other school, even though GSB borrowers had a miniscule default rate of just 0.58% over the past 15 years.  Cagney says the national default rate on student loans is about 8.8%, with an average of 15.5% for students at for-profit schools. At the University of Phoenix, for example, the default rate runs something closer to 18%.

Yet, regardless of who takes out a loan, the interest rate on a federal Stafford loan is 6.8%, while the interest on the federal Direct PLUS loans are 7.9%. Cagney saw an opportunity.


“The student loan market is a trillion dollar industry that is classically broken,” says Cagney, the 41-year-old co-founder and managing partner of Cabezon Investment Group, a San Francisco-based hedge fund. “It’s a market that definitely needed disruption.”

Cagney, who had traded derivatives for Well Fargo in the 1990s and started and sold a wealth management software company called Finaplex in the 2000s, dreamed up a disruptive alternative: SoFi (short for Social Finance) that not only took advantage of the fact that interest rates on student debt were not commensurate with risk, but of linking business school alumni who have money to invest with students and recent graduates who need to borrow money.

“Social means three things to people,” he says. “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.” The idea: to build a student loan company “where social meets finance.”

Cagney graduated from Stanford’s Sloan program in June of 2011 and founded SoFi in September, starting a pilot at Stanford that connected MBA alums with students. He convinced 40 Stanford alums to toss in $50,000 each and then lent $20,000 each to 100 students. The fixed loan rate was 6.24%, falling to 5.99% after graduation, if they agree to have payments automatically deducted from their accounts. There are no origination fees

That compared with a 1% origination fee on 6.8% Stafford loans and an origination fee of up to 4% on the 7.9% federal Direct PLUS loans. An MBA borrowing $100,000 and repaying the loan back over a 15-year period would save nearly $23,000 in origination fees and interest charges by using SoFi over existing government loan programs.

About The Author

John A. Byrne is the founder and editor-in-chief of C-Change Media, publishers of Poets&Quants and four other higher education websites. He has authored or co-authored more than ten books, including two New York Times bestsellers. John is the former executive editor of Businessweek, editor-in-chief of Businessweek. com, editor-in-chief of Fast Company, and the creator of the first regularly published rankings of business schools. As the co-founder of CentreCourt MBA Festivals, he hopes to meet you at the next MBA event in-person or online.