Student loan refi market just getting started, says Credible CEO
In an increasingly competitive U.S. student loan refinancing marketplace, a platform founded by a man born a world away hopes to get Americans to rethink how they repay student loans.
Stephen Dash is CEO and Founder of Credible. The student loan marketplace, where borrowers can compare offers from multiple lenders in a transparent marketplace, is unique in a growing field of student loan refinancing platforms.
“We provide that initial utility no one else provides,” Mr. Dash said. “We aim to provide a Kayak-like experience – very consumer-centric.”
Mr. Dash was born in Australia, which, like many parts of the world, has a different student loan structure. Tuition fees are much lower, and interest rates are tied to inflation. Payments come out of pretax salaries, unlike credit card or mortgage payments.
Mr. Dash said while it is unrealistic to expect students to graduate with no debt, the level of student loan debt is a “global anomaly.”
“I’m not saying it’s better or worse, but it is different,” Mr. Dash said. “It allowed me to understand the opportunity that existed in the US to help people understand their options.”
Helping graduates understand those options takes several factors.
The first is technology. As Credible’s platform features multiple lenders, the technology they employ needs to link with each one and then communicate that information back to the borrower in a consistent format.
“We really leveraged our technology to make the process as seamless as possible to give the borrower the greatest utility we can,” Mr. Dash explained.
“From a technical perspective our job is quite difficult. We’re building a marketplace and a marketplace requires both sides to participate.”
Mr. Dash said Credible spends much time deepening their integration with lender partners. They are data driven, he added, and are constantly improving process flows and thinking how data drives individual borrowing decisions.
The revival of the student loan refinancing industry started in 2012. An industry barely three years old in its current form has plenty of room to grow in terms of adapting technology, Mr. Dash believes.
“There are a lot of technologies around where you can leverage third party data sources to improve the process for customer by accessing more data points with less input per customer.”
“Think about how you use API’s like Facebook Connect in your consumer life. There’s an ability for that type of technology to play a role in student loans and other financial services verticals.”
The value of any aggregation service is directly correlated to how many lenders it attracts, because the more they bring to the consumer, the more convenience they provide.
It is also a chicken and egg process, because Mr. Dash said lenders are attracted to Credible because of the quality and volume of the borrowers on the site.
Credible attracts those borrowers by providing a one-form application process which takes ten minutes to complete. They also educate borrowers about their finances so they can make better-informed borrowing decisions, Mr. Dash said. The volume of borrowers makes it possible to have loan products ranging between five and 25 years in length for borrowers in all 50 states.
One of the factors drawing the borrowers in is Credible’s eligibility criteria, which Mr. Dash said are the market’s broadest. They are able to have such a range because they employ underwriting criteria from many lenders on the back end.
The loans employ risk-based pricing which is absent from the traditional student loan system. That exclusion has long been an annoyance for borrowers where an art history graduate pays the same interest rate as a brain surgeon.
While Credible leaves each partner’s underwriting criteria to them, Mr. Dash said some of the factors lenders often use in risk-based pricing models include where they went to school, what they took and where they are employed.
Stephen Dash believes the student loan refinancing industry has incredible growth potential. A recent Goldman Sachs report estimates the American student loan refinancing market at between $200 to $300 billion. Current platforms are only capturing one percent of that.
“The biggest issue for the entire industry is awareness,” Mr. Dash said. “People are just not aware of the fact they can refinance their student loans like they can with their mortgages.”
Advertising to recent graduates is challenging because of their evolving media consumption habits. Credible uses a variety of methods, including forming partnerships with alumni associations and professional groups. They also are active on social media and offer a popular referral program.
While no one Mr. Dash is aware of has attempted to quantify the amount of capital that could flow into the economy with a more amenable student loan system, he knows that at an average of $11,000 savings on Credible alone, the potential is staggering. One of the reasons the economic recovery is stumbling along is because debt-saddled graduates are unable to get mortgages and renovate homes.