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The company specializes in student loan refinancing but plans to expand into mortgages & other loans
Banks suck. Peer-to-peer lending is the future, my friend.
Peer-to-peer social lending startup SoFi (short for Social Finance) announced Thursday that it has raised $80 million in a Series C round led by Discovery Capital Management, with help from Peter Thiel, Wicklow Capital and existing investors.
Peter Thiel and NYSE CEO Duncan Niederauer are joining the company as advisors while Discovery’s S.P. ”Wije” Wijegoonaratna is joining the company’s board of directors.
Founded in April 2011, the company focuses on refinancing student loans, but also offers unemployment protection and an entrepreneur program. SoFi also plans to use the new capital from this round to expand to mortgages and personal loans.
Currently, federal Direct loans come with an interest rate of 6.8% while PLUS loans tout an interest rate of 7.9%. Private loans can soar as high as 16%. SoFi loan interest rates, on the other hand, are fixed at 6.4% and can drop to 5.99% upon graduation (catch: unlike federal loans, students begin accruing interest while still in school).
To date, 5,000 borrowers have used SoFi to cover $450 million in loans, and SoFi borrowers have saved an average of $9,400 in interest.
“A generation of Americans has deferred their dreams, because they have to service more than a trillion dollars of student loan debt instead,” said Peter Thiel, in a statement. “Until college administrators realize how much their tuition hikes hurt students, we need to find innovative ways to make debt more manageable. SoFi helps borrowers get out from under the crushing burden of debt and begin pursuing their own goals immediately, instead of waiting for a time that never comes.”
It’s not entirely clear how SoFi is able to offer such low rates, or whether the same bankruptcy rules apply. Currently, student loans represent the only type of debt you can’t scrub from your record if you file for bankruptcy. We’ve reached out to SoFi for more information and will update the story when we hear back.
Lending Club, arguably the leader in the peer-to-peer lending space, is able to offer rock bottom interest rates by accepting only top-of-the-line borrowers with the best credit. Lending Club only accepts approximately 10% of applications, which translates to a virtual guarantee of positive returns for lenders, so everybody wins.
The new round of funding brings SoFi’s total to $161 million. Existing investors include Baseline Ventures, Renren Inc., DCM, and Innovation Endeavors. The company plans to use the new capital to expand its student loan refinancing offerings while also branching into mortgage and personal loans.
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Lending Club is a social lending network where members can borrow and lend money among themselves at better rates.
Lending Club provides a much improved infrastructure for social lending: state-of-the-art technology to authenticate all users (ensuring making sure they are who they say they are); credit scoring systems which rate borrower risk; and, the automated clearing house (ACH) system to move the funds between both parties. In addition, we provide our LendingMatch™ system to minimize risk and allow community based lending.