TECHNOLOGY | Updated September 11, 2012, 4:38 p.m. ET
Student-Loan Online Start-Up Gets Financing
By PUI-WING TAM
Social Finance Inc., a one-year-old Internet start-up that offers inexpensive student loans through a mechanism known as "group-to-group" lending, has raised $77.2 million to expand its service to universities nationwide.
The funding values the San Francisco company at more than $177 million, up from $8 million a year ago, a person familiar with the matter said.
Investors include venture-capital firms Baseline Ventures and DCM and Chinese social-networking concern Renren Inc. RENN-1.57%
SoFi is part of a growing field of start-ups that connect individual or groups of lenders with borrowers online, a process known as peer-to-peer or group-to-group lending. The companies essentially function as online loan marketplaces, matching borrowers and lenders and levying fees off the loans.
Peer-to-peer lending company Lending Club Corp. in June snagged a $573 million valuation in a round of funding, double its valuation from about a year earlier.
With SoFi, university students can refinance their existing loans or apply for new loans through the site, snagging interest rates starting at about 5.9%. Interest rates on government loans start at about 6.8%, said SoFi Chief Executive Mike Cagney. The lenders on SoFi typically are groups of alumni, who stand to make at least a 5% return on the loans, he said. The lending programs also offer students and alumni the opportunity to make a social connection, he said.
The idea is to give "students better alternatives to fund their education while strengthening ties to their alumni community," Mr. Cagney said.
SoFi's service is available at 78 institutions, including Stanford University and Swarthmore College, and the company has originated about $65 million in loans. With its new funding, SoFi plans to make its lending program available in 250 institutions of higher education over the next year and to prefund new loans, Mr. Cagney said.
Student debt has been growing. Since late 2008, student-loan debt has risen by $303 billion, while other forms of debt have declined by $1.6 trillion, according to a report last month from the Federal Reserve Bank of New York. Student-loan debt stood at $914 billion as of June, the report said.
David Chao, a venture capitalist at DCM, said his firm invested in SoFi because it addresses a "pain point" for students and sits at "the intersection between social and finance."
Write to Pui-Wing Tam at
Corrections & Amplifications
Social Finance Inc. was valued at $8 million a year ago. An earlier version of this article incorrectly said its valuation had increased $8 million in the last year.
12 September 2012
From /online.wsj.com/article/SB10000872396390443696604577645803639439284.html?KEYWORDS=education