“We found that when given the option among 10, 15 and 20-year terms, students overwhelmingly go for ten and the average prepayment is six to seven years,” says Klein. “These are students who understand that they want to pay their loans off when they can and they understand that a shorter term is better than a longer term loan.”
WHAT SETS COMMONBOND APART
Klein believes that three things set CommonBond apart from SoFi and other lenders: the startup’s more modest growth plan, its efforts to build a true student community, and the social promise of the company.
“One of the things we want to make sure we can do is to reduce the cost of educational finance,” says Klein. “We know this model is new and disruptive and in order to take hold we need to de-risk this as much as possible. We have got to go after students with the best credit records. We want to be in 20 schools by the end of the year and those 20 will be schools where the data shows that the credit quality is very high.”
Like SoFi, CommonBond is also attempting to link students with alumni for mentorship and advice. “The key is going to be who can build a community that students want to belong to,” says Klein. “We think it is more than putting up a social button or a website.” Over the summer, for example, CommonBond held happy hours in New York every other week, reaching out to more than 7,000 MBA students in the city on internships. An end-of-summer gala in New York, where Klein estimates that 20% of all top MBAs intern, drew more than 400 students.
‘ALUMNI OFFICES HAVEN’T QUITE CRACKED THE NUT ON ACROSS-THE-BOARD NETWORKING’
“It was an opportunity for students from all schools to get together and connect,” says Klein. “Among the MBA set, one of the ways you increase your value is to network. Alumni offices haven’t quite cracked the nut on across-the-school networking. We think that is incredibly valuable. We believe we can lower an MBA’s loan expenses but also increase their top line.”
And finally, the trio is committed to insuring that their company is having a positive social impact. “We firmly believe that business should be a force for positive change,” says Klein. “We believe that business has a responsibility to influence positive social impact. We believe that in our heart of hearts.”
So in the same way that TOMS Shoes provides a pair of shoes to the needy for every pair the firm sells, CommonBond is pledging to fund the education of a student abroad for one year, for every fully-funded MBA degree it backs. The startup has partnered with the African School for Excellence to make good on its promise. It is also supporting financial literacy education programs in under-served neighborhoods in the U.S. The company’s “Social Promise” is both global and local.
ESTIMATES THE SIZE OF THE TOP-TIER MBA LOAN MARKET TO BE MORE THAN $5 BILLION
Klein believes the size of the business school graduate loan market alone is more than $5 billion, including the refinancing of existing MBA loans. “Our goal is to have raised $100 million by the end of 2013,” Klein maintains. “Of the $100 million, alumni will be a part of that but so too will be the broader investors in the financial community.”