Business school students and graduates at the top 20 U.S. schools will be able to borrow more money at lower interest rates as a result of new funding for CommonBond, an MBA startup out of the Wharton School.
The New York-based student lending company–which targets the financing of MBAs at the top 20 U.S. programs–announced on Sept. 4 that it has raised an additional $100 million, with the vast majority of the money going toward student loans (see details here). The funding is a major boost to the company which initially raised $3.5 million from investors.
Graduates of at least six business schools last year borrowed more than $100,000 on average to finance their degrees. The heaviest debt was assumed by graduates of the University of Pennsylvania’s Wharton School, where average debt hit an estimated record of $117,200. MBAs at Columbia Business School (an estimated $114,800), New York University’s Stern School ($105,782), Duke University’s Fuqua School ($102,054), the University of Virginia’s Darden School ($105,490), and MIT Sloan ($100,212) all racked up six-figure debt, too.
“We are thrilled to extend our loan program nationally to many more MBA graduates and students,” said CommonBond co-founder and CEO David Klein in a statement. “Student debt continues to pose a tremendous challenge for graduates and students, and we’re excited to bring to market a solution that eases that debt burden. We’re starting with MBAs and will expand from there.”
MBA graduates who carry student loan debt are able to consolidate their MBA & undergraduate loans through CommonBond at a fixed rate of 5.99% (with automatic debit). These MBA graduates can save over $17,000 compared to their federal government loan rates. Additionally, current MBA students are able to finance their loans at a fixed rate of 6.24%, compared to the Federal Graduate Direct PLUS loan at 6.41%.
The company’s rates are lower than prevailing interest rates because CommonBond focuses on the most creditworthy students at top schools. Government pricing of student loans, in contrast, require MBA students at all schools to pay the same rates, regardless of their creditworthiness or their earnings potential.
Klein, the 33-year-old entrepreneur who is CEO of CommonBond, said he expects to raise an additional $500 million in 2014, and $1 billion the following year. With that additional funding, the company plans to offer loans and re-financings to law, medical and engineering students next year.
CommonBond’s equity financing was led by Tribeca Venture Partners in New York and includes The Social + Capital Partnership in Silicon Valley. Other investors include respected industry veterans in former Citigroup CEO Vikram Pandit, former Thomson Reuters CEO Thomas Glocer, and former Barclays senior executive Tom Kalaris. CommonBond is now accepting applications from students and graduates of 20 MBA programs and has plans to roll out the platform to additional graduate students.
Klein and his cofounders began the company as MBA students at Wharton in 2011. Baffled at the cost of their loans, the team looked to create a crowd funding model for student lending based around tight-knit business school alumni networks. After a stint in Wharton’s Venture Initiation Program, a sort of in-house incubator, the team raised $3.5 million in seed capital and lending funds from Wharton alumni before launching in November 2012.