If you've ever tried to secure a student loan, you know all too well how frustrating it can be. After experiencing the trying process firsthand, my guest today set out to change things. His goal was simple - - launch a digital startup to automate the archaic student loan industry.
David Klein, co-founder and CEO of CommonBond, has, you guessed it, reinvented the archaic and bureaucratic process of securing student loans. David spent his first semester of grad school writing a business plan, ultimately dropping out to make his dream a reality (he was able to convince his co-founders to drop out, too!)
They made 200 passionate pitches to prospective angel investors, and not a single one of them bit. But alas, the 201st pitch was a success and a lead investor was secured (helpful tip: Don’t give up on your dreams!). Fast forward eight years, and CommonBond has facilitated more than $6 billion in student loans via their platform.
Did you know that there is $1.6 trillion in student debt floating around in any given year?
On today’s podcast, we discuss the higher education bubble and something called the “Amenities Arms Race”. David explains the race among colleges and universities to provide more and better everything to students on the experiential side of the house – from amped-up sports facilities, to celebrity professors, and more.
How did we get to $60,,000, $70,000…$80,000 tuitions?
$1.6 Trillion in outstanding student loans
Have costs of running institutions gone up?
Who pays full sticker price and who doesn’t
There’s an “Amenities Race” amongst colleges to provide students more and better, i.e. sports, celebrity professors, more to do with experiential side of colleges not academic
Not much incentive for colleges to keep expenses in check
Pressure on tuition costs will be higher if students don’t come back this Fall because experiential component is removed; hard to justify price tags
Colleges have to meet enrollment or there will be big budget hole
May need to get creating so they don’t lose their shorts
Cost structure very dependent on tuition levels
Pressure will come from students and parents
David quitting grad school to start CommonBond
Takes a lot of conviction
Why higher education
Feels like this industry chose him during his own broke students loan process
Wrote the b-plan during first semester of b-school
Raised first round fo capital 2 month after quitting
3 parallel tracks when launching:
Had 200 angel investor pitches before getting his first YES
Decided to go angel investor route
Then raised VC money at the next round
Have raised $130m in equity to-date over 5 rounds
Have closed / have access to $6 Billion in lending capital at disposal
Becomes easier to secure capital as he deploys more loans and becomes a bigger lender
Warehouse lines of credit from Goldman Sachs, ING, Citi
He then sell loans to insurance companies, pension funds, asset managers
Federal interest rates have never been lower
Default rate is 10-15% at Fed level; below !5 on CommonBond
$1.6 trillion in student debt each year
Grad students tend to better interest rates since they usually have a better risk profile having worked for a few years prior
CommonBond saves a student several thousand dollars over the life of a loan that they can deploy; helps them think thru how to deploy that extra cash
Compass Point policy newsletter
Lend Academy / LendIt
Personal network on LinkedIn is a great source for him
Adam Grant, Professor, at Wharton, Give and Take book and Plan B co-authored with Sheryl Sandberg