CommonBond is shaking up the student loan market by helping Americans refinance their loans and save an average of over $14,000 with rates starting at 2.23% APR. As its website notes, however, “We didn’t just build a better student loan. We built a community.”
The crowdfunded student loan platform sources capital from alumni and individual investors, who receive a competitive financial return and a social return on their investment. As part of CommonBond’s Social Promise, investors and participants see that every student loan helps provide education for a child in need. As CEO and Co-Founder David Klein states, “Business can, and should be, a positive force for change.”
The startup launched in 2011, when David Klein, Mike Taormina and Jessup Shean met as Wharton MBA students and set out to tackle one of the most frustrating areas of consumer finance: the student lending industry. Armed with backgrounds in finance, and a wealth (or more accurately, “debt”) of first-hand student loan experience, they co-founded CommonBond.
Since then, the company has grown—including a recent infusion of $300 million in new funding and the acquisition of Gradible, a student loan management platform—but what has remained consistent is the mission to deliver competitive pricing, a simple, tech-enabled experience, and exceptional customer service.
Chief Marketing Officer Phil DeGisi spoke with brandchannel editor Shirley Brady at Baruch College’s recent conference in New York, “Defining Tomorrow: Lessons in Disruption,” held in partnership with Interbrand, Ready Set Rocket, and the New York Stock Exchange.
brandchannel: In the crowded student loan space, what is CommonBond’s value proposition and what do you bring to the marketplace?
Phil DeGisi (right): CommonBond is a tech-enabled consumer lender that currently focuses on student loans. We believe student loans should be more affordable, transparent, more easily managed whether that’s on your phone or laptop or wherever you are.
We launched nationally about three years ago and we’ve lent out over half a billion dollars in loans over that time and we save our customers, on average, over $14,000 over the life of a loan by refinancing them to a lower rate.
Q: We’re at a fintech conference. How does CommonBond’s technology enable what you offer, and how are you personalizing and innovating in the student loan space?
A: The way by which we offer them a lower rate is we use data and technology to provide a personalized interest rate to the customer. Traditionally, lending was primarily a FICO-based model. The higher the FICO, the lower your interest rates. FICO is a good predictor of risk but not the be-all and end-all of risk.
We’re using FICO but we’re also using your credit history, using what’s called free cash flow, that is your monthly income, monthly obligations like rent, student loans, mortgage, what have you. And using that plus your employment and when you studied, all these things together you are able to combine to make a personalized interest rate to the consumer that is more fulsome than just a credit-based decision.
We are technology-based, but we’re also listening to customers and focused on how to better serve them. Both those things are critical to get right, the technology and the customer-centricity.
Q: Who’s your target audience, and how are you reaching them?
A: We target credit-worthy borrowers who can afford to pay back their student loans and probably just paying too high of an interest rate. So many people are coming to us with 7, 8, 9 percent interest rates who shouldn’t be priced that way. So we’re saving them two to three percentage points just on that alone. The average student loan these days that we refinance is about $80,000, so it’s a pretty substantial amount of debt. Typically, these are people that have undergrad debt and graduate school debt, so it’s a combination of both.
The way we get the word out is a combination of brand-building as well as direct response. The direct response channels, that’s everything from Google Adwords to Facebook advertising and direct mail. And on the brand-building side, we do events in our office on financial wellness, how to save on retirement and then we also have partnerships where we’re partnering with companies who want to offer student loan benefits to their employees that’s one of the best ways for us to get the word out – employers who want to help their employees. We also do some sponsorships with school organizations and alumni associations.
Q: Much of what you do entails building trust in your customers; how do you go about that?
A: This is a medium- to high-consideration product. People are refinancing at times and have half a million dollars of loans with us, so trust is really critical. The way you build that is having company values that are consistent with customer-centricity, so an example of that in refinancing is a great solution to save on your student loans. But it’s not the right solution for everyone. And it’s something we focus on when it’s not the right solution for someone.
We’re transparent with the customer about that. If you’re struggling to make your payments, it might be a better fit for you to use a federal loan repayment program where you pay a percent of your income. That could be a good example where it’s right. If someone is working for a non-profit and plans to continue working for a non-profit, they can have their loans forgiven if they make 10 years of on-time payments from their federal loans. In that case you might not want to give that up by refinancing with us and we’re very transparent with the customer about that.
In some of those cases you’re turning a customer away but what you’re also doing is building a brand that will always do what’s right for the customer. Whether they become a customer or an applicant, that drives word of mouth and our reputation as a good actor at a time when, in financial services, there’s a history of bad actors.
Q: What trends are you watching in fintech?
A: What they’re looking for from us is making the process as simple as possible. We’ve been one of the leaders in getting things automated—as automated as possible in personal finance—but there’s more we can do there to remove things the customer has to do and take them on ourselves through technology. So that’s our mission and something that we focus on.
We’re watching blockchain and seeing what’s happening there. There could be some interesting implications over the longer horizon for us, for our counter-parties who purchase our loans, so that’s something we’re keeping an eye on.
Bots, Facebook bots and things like that, are interesting. It’s not something we’ve tested yet but I think that’s the alpha step into what will be pretty interesting to see—how can you use technology to automate simple questions and simple experiences for the customer, but balancing that with personalized care and service and making sure you’re always treating the customer great and not just an automated interaction.