September 4, 2013 2:00 pm

Wharton start-up CommonBond extends loans to 20 US MBA courses

David Klein, Jessup Shean and Michael Taormina commonbond©Pascal Perich

Money matters; David Klein, Jessup Shean and Michael Taormina

CommonBond, the MBA student lender, is set to expand its social lending model to 20 of the top programmes in the US.

Following a successful pilot scheme lending to MBA students and recent graduates at the University of Pennsylvania’s Wharton School, the company is inviting their peers at business schools* including Harvard and Stanford to apply for funding.

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The start-up has raised more than $100m – through debt financing and by selling equity – to fund its expansion.

“Before launching nationally, we wanted to ensure we had enough capital to meet the demand of our student and graduate borrowers,” says David Klein, chief executive and co-founder of CommonBond. “We believe our $100m funding target gets us there.”

The company joins the likes of SoFi in the growing stable of US-based MBA lenders that provide an alternative to established sources of postgraduate funding, such as federal loans.

CommonBond launched in November 2012, when it lent $2.5m to 40 MBA students and recent graduates of Wharton, where its co-founders met. For this first phase, money was raised through crowdfunding, with the business school’s alumni investing in the current crop of students.

To finance its national launch, the company looked to institutions. Leading investors include Tribeca Venture Partners and the Social+Capital Partnership, as well as former Citigroup chief executive, Vikram Pandit.

In the long run, however, its plan is to source capital from an array of sources, ranging from alumni to hedge funds. “Our goal is to foster a community of borrowers from various schools and degree programmes, as well as a community of investors of different types and styles,” says Mr Klein.

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CommonBond offers students and graduates of top-tier MBA programmes study loans at lower rates of interest, as reflecting their higher earnings potential.

Interest rates are fixed at 6.24 per cent, lowered to 5.99 per cent when paid by automatic debit, with a 2 per cent origination fee for new, but not refinanced, loans. In comparison, the federal Graduate Plus loan currently has a fixed rate of 6.41 per cent, with a 4.2 per cent origination fee.

Though a for-profit company, CommonBond is committed to what its co-founders call a “social promise” to enhance access to education. For every degree fully funded, it finances a year’s education for a student at the African School of Excellence in South Africa.

The company’s ambitions are not restricted to MBA loans. Mr Klein says that CommonBond plans to roll out its lending model to other US graduate students – including those at law, medical and engineering schools – in 2014.

Prodigy Finance – which was founded by Insead alumni in 2007 – also employs an alumni investment model to finance MBA students at eight European business schools.

* CommonBond’s business school network:

Carnegie Mellon: Tepper, Columbia Business School, Cornell University: Johnson, Dartmouth College: Tuck, Duke University: Fuqua, Georgetown University: McDonough, Harvard Business School, MIT: Sloan, New York University: Stern, Northwestern University: Kellogg, Stanford Graduate School of Business, UCLA: Anderson, University of California Berkeley: Haas, University of Chicago: Booth, University of Michigan: Ross, University of North Carolina: Kenan-Flagler, University of Pennsylvania: Wharton, University of Southern California: Marshall, University of Virginia: Darden, and Yale School of Management

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