Founded in November 2011, CommonBond was the brainchild of David Klein and Michael Taormina who were first year students in the University of Pennsylvania, Wharton Business School. Fellow Student Jessup Shean, who was in the final year of her dual JD-MBA degree was their advisor. The main reason for coming up with this idea was the frustration faced by the founders on the lack of affordable loan options to fund their education. Their Business proposal was accepted by the highly selective Wharton venture Initiation program, which serves as a start-up incubator.
CommonBond founders after deciding to pilot their model at the Wharton focused on fundraising during the summer of 2012. By November 2012, CommonBond raised $3.5 Mn. CommonBond’s first fund was lent to 40 MBA students and recent graduates at Wharton. Recently, CommonBond announced that it has raised $100 Mn for funding student loans from investors including Tribeca venture Partners, Vikram pandit (Former CEO, Citi Bank), Tom Glocer (Former CEO, Thomson Reuters), Tom Kalaris (Former CEO, Barclays), Thomas Gloce and The Social+Capital Partnership.
CommonBond is based on a model of “social lending.” Student borrowers gain access to lower cost, fixed rate loans provided by investors who earn a competitive financial return. With the cost of borrowing increasing both in case of both fixed, variable interest rates, peer to peer lending platforms have risen to prominence more significantly in the recent times. P2P lending platforms essentially look to crowdsource investment (from individuals, institutions, etc.) in people’s loans, connecting people who want to borrow money with those who want to invest in something with steady returns resulting in the elimination of Middle man which in this case is Bank.
There are 2 types of borrowers in this model:
- Current Students – Include those seeking new loans
- Graduates – Include those paying off loans
Money required for these categories of borrowers is being raised from alumni and a community of investors who realize the potential of Students and recent graduates which other Lending institutions do not recognize.
The figure shown below gives a clear idea of the business model followed.
The average debt per student at present is current $27000. CommonBond’ s goal is to reduce the amount of student debt by providing more affordable loans and refinancing options.
Some other popularly known student loans are the Stafford Loan, Direct- Plus loan. These have an interest rate of approximately 6.8 percent and 7.9 percent respectively whereas CommonBond offers loans at a fixed rate of 6.24 percent.
About their platform:
- Stakeholders become part of a community committed to help each other succeed.
- Mutual benefit to both the investors and borrowers as far as financial benefit is concerned. As far as the current rates are taken into account, the borrower can anticipate of savings of approximately $25,000 over the life of repayment.
- CommonBond gives the students an unique opportunity to connect with their fellow borrowers and also alumni lenders enabling them to maintain connections for further use and also guidance thereby promoting mentorship along with the financial support.
Some of the events organized by CommonBond include Hosting networking events that bring together students, alumni, and forward thinking professionals in one interconnected and supportive environment geared at developing each other thereby resulting in the overall development of the individuals, ultimately providing a compelling value proposition to all the stakeholders involved.
On January 31, 2013 CommonBond celebrated the launch of its student loan financing platform at Wharton Business School with a gala at The Penn Museum in Philadelphia benefiting KIPP Philadelphia Schools. Over 400 guests from the Wharton community attended the event, partaking in hors d'oeuvres, entertainment, and a silent auction featuring specially-donated products and experiences from a range of Wharton start-ups including Adornia, Dagne Dover, Stone & Strand, ZenKars and White + Wong. Other young start-ups, included Jack Robie, Uber and Tuckernuck.