SoFi Tapping Alumni to Help With Student Loans

A start-up that had a test-run at Stanford University’s business school last year aims to tap alumni as a source of funding for student loans at colleges across the country.

SoFi — short for Social Finance Inc. — is branching out and expects to begin taking applications for consolidation loans in April from recent graduates of five business schools, using funds raised from alumni of those schools (Harvard, M.I.T., Northwestern and the University of Pennsylvania, in addition to Stanford).

SoFi also aims to begin taking applications in June for new student loans for undergraduates and graduate students at about three dozen schools for the 2012-13 academic year.

SoFi is raising funds and expects to originate $150 million in loans this year, although the amount available at each school will vary. Students can register their interest in applying for both types of loans on SoFi’s Web site.

SoFi marks a sort of evolution of “peer to peer” lending programs, likeGreenNote, that aimed to help students tap their own social networks to help fund their education, although Mike Cagney, SoFi’s chairman and chief executive, describes SoFi’s model as more of a “group to group” approach.

The idea, Mr. Cagney said in an interview, is that by linking students with alumni, who had an interest in seeing the school’s graduates, and their own investments, do well, students would be more successful and less likely to default on their loans. “We believe that the stronger the social fabric, the lower the defaults and the higher the alumni realized returns,” SoFi explained in a letter to potential Stanford investors. (It also said, though, that because the company didn’t have much of a track record, that theory was as yet unproven).

The loan pools at each college are being coordinated by alumni working with SoFi, rather than through the schools themselves. However, loans to current students will be distributed through school financial aid offices. Alumni aren’t involved in choosing which students get loans, but they will be kept informed about student repayment performance, Mr. Cagney said. It’s also hoped that they will act as mentors to the students, interacting with them online to advise and encourage them in their education and in their careers.

Consolidation loans of up to $200,000 for recent graduates will be offered at a fixed rate of 5.99 percent, which is below the federal consolidation rate for most borrowers, SoFi says.

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