Student debt in the U.S., which currently weighs in at $1.3 trillion, and affects 40 million Americans, is something that many startups are trying to solve.
Perhaps none, however, have done a more creative job than Credible.
While most new lenders build out algorithms to offer their own services (think: Earnest, or SoFi), Credible has a somewhat gentler approach. The San Francisco, Calif.-based startup, which bills itself as a 'multi-lender' marketplace, partners with third-party lenders (both cemented banks, as well as online lenders) to offer clients a variety of options to either borrow or refinance their student loans.
On Wednesday morning, the company announced its close of a Series A funding round, including investments from notable players in the space. LendingClub's Soul Htite, Prosper president Ron Suber, and Scott Langmack each contributed to Credible. (LendingClub, it's worth noting, had a historic IPO in December of 2014, the first of any online lending firm, where it reportedly raised just under $870 million.)
Previous investors in Credible include Mark Goines, Carthona Capital, Redbus Group, and Bruce Gibney, who put up a total $2.7 million in seed funding.
"Simply put, we are making student loans more fair. In Soul, Ron and Scott, we have three of the most experienced individuals in online lending, which will allow us to accelerate our growth," said Credible's founder and CEO, Stephen Dash, in a statement.
With its automated platform, Credible claims it can serve more, traditionally risky clients, by evaluating factors beyond credit scores.
"Every lender out there is really targeting a slightly different audience," Dash tells Inc. by phone. "By combining multiple lenders, we're able to broaden the eligibility of the people we can serve." Credible has partnered with the upstart CommonBond, for instance, and banks such as Citizens Bank and the Bank of Virginia.
Credible's lending partners can often offer loans at relatively low rates. Fixed annual percentage rates (APRs) begin at 3.74 percent, with variable rates beginning at 1.91 percent. That's about on par with Earnest, another San Francisco-based lending firm, which typically charges between 3.5 and 7 percent (fixed), or 1.9 percent (variable). Earnest and SoFi were both approached to partner with Credible, but declined.
Credible's services are entirely free to clients, but in order to qualify, those clients are required to have at least $5,000 worth of student debt. They don't necessarily have graduated in order to receive re-financing, although most of them have. On average, a typical Credible client saves $11,000 over the course of their loan.
A creative model.
Credible makes money through commissions from its lending partners once the customer accepts an offer, completes an application, or submits an offer request. About 170,000 borrowers have created accounts on Credible, and it sees about $150 million each month in completed profiles.
"Credible's unique model is fundamentally changing the dynamics of the loan selection process. We see Credible as a core fixture of the next phase of online lending," Soul Htite noted of the company.
"Disruptive, consumer-centric solutions like Credible are a big part of the next chapter of online lending and the new access economy," added Prosper's Ron Suber.
Dash got the idea to start Credible while serving as an investment banker at JP Morgan. A native Australian, Dash said he was shocked by the (grossly expensive) inefficiencies surrounding student debt.
"I describe the U.S. student loan market as a global anomaly in the way it's set up," he explained. "I saw an opportunity to build a piece of infrastructure that could grow and exist as this market developed."
Fiscal prowess has served Dash well, and arguably, it's necessary to any new entrant to this niche space.
"Traditional financial institutions already have student loan refinance products to retain or attract profitable customers. In addition, banks and credit unions have student loan debt consolidation products that enable them to increase their share of wallet among the best borrowers, and lower the monthly payments of high risk borrowers," noted Craig Focardi, a principal with research institution CEB TowerGroup, in a recent interview with Inc.
"New market entrants need to have well-developed credit scoring and loan pricing analytics to ensure that they optimally underwrite and price these loans," he added.
Dash is confident that the visibility Credible provides will continue to attract those customers. "People should always shop for these big decisions, they should always compare different options," he says.
By way of analogy, Dash explains: "If someone's going to fly from JFK to SFO, they're going to go on Kayak, or Expedia. The same thing should happen with these big financial decisions."