• Jun. 22, 2017, 6:48 pm

ReliaMax disrupting private student loan industry

If you’re going to be the only insurer of private student loans, you better know the industry. Armed with three decades’ worth of data ReliaMax definitely does, CEO Mike VanErdewyk insists.

The ReliaMax story begins when Mr. VanErdewyk acquired Hemar Insurance Corporation from Sallie Mae in 2006. Founded in Sioux Falls, SD in 1986, Hemar had been insuring private student loans for 20 years. That’s 20 years of data on private student loans at a time when the fintech industry was just beginning and the student loan space was virtually untapped.

That’s quite an advantage, one which ReliaMax has used to facilitate more than $3 billion of insured private student loans, to a total of $15 billion if you go back to 1986, Mr. VanErdewyk said.

Mike VanErdewyk

Mike VanErdewyk

That intuition helped ReliaMax avoid the worst of the recession by not insuring loans in 2007 or 2008, Mr. VanErdewyk added. It also served as the platform for growing out a more comprehensive set of products and services.

“We are the Uber of private student loans today. We connect people who need money wth lenders, banks, credit unions, and alternative lenders. ReliaMax has more than 450 active lenders.

“Nobody has built a model like what we have in the private student loan space.”

ReliaMax provides a turnkey solution with five distinct aspects – borrower acquisition, origination, servicing, insurance and portfolio liquidity. Whereas other student loan servicers are built on legacy technology, ReliaMax was built from scratch to specifically service the private student loan market, Mr. VanErdewyk explained.

“The value proposition we offer a lender is we help them enter into a very profitable asset class that guarantees them a fully profitable principal and interest. It’s our capital on the line.”

Most startups in the student loan fintech niche are essentially fighting for Stanford grads making $200,000-plus each year. Not ReliaMax, Mr. VanErdewyk said. They work with different segments, mostly prime and near-prime borrowers.

That’s where 30 years of data and the ability to interpret it comes in handy, Mr. VanErdewyk said.

“We’ve been in this a long time. There’s been five downturns since 1986. Others have been in business for five years and have not seen one, so they don’t know how this asset class performs in a downturn.”

ReliaMax applied a series of filters when assessing borrowers, Mr. VanEdrewyk explained. Start with the school the borrower is enrolled in and then look at the specific program. Eventually you get into the individual borrower level, where 90 per cent of loans are cosigned.

“There are so many unknowns with undergraduates,” Mr. VanErdewyk said. “Without having the 30 years of data it’s hard.”

ReliaMax is the only company to insure private student loans but that is not the only way in which the company is unique, Mr. VanErdewyk added. They offer the borrower a single point of contact throughout the life of the loan so a relationship develops and issues that arise can be dealt with more efficiently. The average ReliaMax service representative has more than 15 years of experience.

“The main thing we’ve learned over 30 years is that this is a relationship business,” Mr. VanErdewyk said. “Student loans are not dischargeable in bankruptcy, As an advisor, we ask what can we do to help them.”

I spoke with Mr. VanErdewyk around the time ReliaMax signed an agreement with MetaBank that will see ReliaMax insure MetaBank’s private student loan portfolio. ReliaMax, along with Garnet Capital Advisors, helped MetaBank acquire the $151 million student loan portfolio containing more than 5,000 loans.

ReliaMax Surety Company will insure the loans. ReliaMax Lending Services will assume loan servicing duties. It’s the eighth such deal ReliaMax has helped facilitate and there are more to come, Mr. VanErdewyk said.

“There’s more demand than supply. Banks, investors and family offices would buy this asset class but only if they are insured and serviced by us. We switched the servicing over so it’s a very good investment for them.”

When the inevitable downturn comes, some student loan fintechs will be exposed as high on “fin” but low on “tech”, Mr. VanErdewyk suggests. There is plenty of money flowing into the space, with most of it going to companies focused on borrower acquisition. Those companies have little data analytics ability and do not insure the loans. That leaves them vulnerable to the downturn.

ReliaMax’s Uber-like business model sees them working off the balance sheets of close to 500 lenders, while others conduct business just off their own.

“Technology enables us to this,” Mr. VanErdewyk said. “Designing this from scratch allows us to do lots.”

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