Max Levchin’s loan start-up takes student loans
To affirm, the young but ambitious financial start-up launched by PayPal co-founder Max Levchin, is entering the huge and messy world of student loans.
On Tuesday, the two-year online lender will officially unveil its next product: loans that allow people to attend coding camps and other tech training hosted by the General Assembly, Bloc and Kaplan. The idea is to help recent college graduates – millennials, if we’re to use that word, and To affirm kiss he- obtain technological skills which can give them better jobs, pull them out of unemployment or underemployment.
The new program also marks the start of a potentially ambitious expansion for San Francisco-based Affirm, which so far mainly offered online installment loans to help people finance large online purchases like mattresses or furniture.
Funding for professional development courses is a relatively small step in the US $ 1.3 trillion student loan market, as the company readily admits. Executives call Affirm’s new program both a fact-finding mission and a product extension. “Part of that is we’re starting to get closer to education to understand what’s going to happen,” says Brad Selby, vice president of merchant services for the company.
“The traditional student loan is a very original and curious animal,” he adds. “None of us at Affirm would claim to really understand this deeply.”
Regarding the expansion into funding for full undergraduate or graduate programs, “there are so many changes going on, I’m reluctant to suggest that we’re going to engage in traditional educational loans,” says Selby. . “But if there is a space to come in and stir up trouble for the incumbents, we will.”
Student loan debt is a huge problem, compounded by high tuition fees and high unemployment during a recession. The government is by far the largest student lender, holding about 93% of the United States’ educational debt, according to data firm Measure One. Many large banks and other traditional lenders have abandoned the market in recent years, and the remaining private companies face an increase regulatory review, in particular the Bureau for Financial Consumer Protection.
So depending on your perspective, that leaves a window of opportunity for startups that want to get into student credit, or make them stupid to try. Affirm is among those who bet it is the first; it will compete with other financial startups, including Earnest and Climb, to offer the loans through the boot camp companies. Over the longer term, especially if Affirm expands into more traditional student loans, it could find itself in competition with incumbent financial giants Sallie Mae, Wells Fargo and Discover.
Affirm sells its services through General Assembly, Bloc, and Kaplan’s Dev Bootcamp and Metis. There is no revenue sharing agreement or other financial arrangement between Affirm and its educational partners, Selby says.
Most programs last around 10 weeks and cost around $ 10,000, Selby says, adding that Affirm offers deferrals of up to six months from when borrowers first receive some of the loans. Ideally, someone would take out a loan to pay for the course, complete their training and get a well-paying job before they have to start paying down their debt, he adds.
Still, that’s the best-case scenario, as some of Affirm’s interest rates are high – up to 20%. (Its lowest interest rates start at around 6%.) Selby says Affirm’s relatively high rates mean the company can lend to people who otherwise wouldn’t qualify for more traditional student loans. and showers at risk.
“We’re getting there from a very high approval perspective. This 20 percent student probably won’t get a competitor’s loan, “he says, adding that a 20 percent loan translates to” ultimately not a lot of dollars – and it’s available, as opposed to To a low-cost loan that is more difficult to qualify for.
This is Affirm’s general mission: Levchin wants to tackle the big banks that won’t lend to young people or others without a lot of established credit, as well as to create a kind of more transparent financial company.
“We focus on transparency and honesty – not so much on the lowest price, but on the clearest explanation and very simple understanding of what is really going on, what these loans look like and when they end. -they, ”Levchin told me last month.
Affirm started rolling out the education funding pilot project about five months ago. Selby wouldn’t provide much in terms of numbers, including the number of loans made so far or the loss rates on those loans.
The startup in May mentionned he had raised $ 275 million, much of which was debt to expand his lending programs, Levchin said.
* This article has been updated with additional information on Affirm’s interest rate ranges.