July 7, 2017
MEDICI now! Startup Stories highlights the companies that are shaping the new financial technology industry. Keep an eye out each week for new stories! If you or someone you know should be highlighted, send us a note. Without further ado…
Company Name: ReliaMax Holding Company
Name/Title: Mike VanErdewyk, CEO & Founder
Industry Segment: Private student loan solutions provider
Target Market(s): US
LTP: Tell us a little bit about yourself, please.
Mike VanErdewyk: I was born and raised in South Dakota. I attended Dakota State University and earned my degree in Biology. Most of my career has been in financial services at companies like Prudential, EF Hutton, and Merrill Lynch. I’ve also started several companies, with ReliaMax being my most recent. ReliaMax began in 2005 as a Workers’ Compensation insurance company. In July 2006, ReliaMax acquired HEMAR Insurance Corporation from Sallie Mae, which launched us into the private student loan business, literally overnight.
LTP: Give us a paragraph pitch of your company.
MZV: ReliaMax is the Uber of private student loans; we connect student borrowers who need loans with banks, credit unions and alternative lenders that can provide loans. Similar to how Uber doesn’t own the cars, we don’t own the loans. Rather, we work with over 450 banks and credit unions to connect them with borrowers (students and their co-signers) and we administer, originate, service and insure the loans on a lender’s behalf. That makes it easy, fast and efficient for lenders to enter the private student loan asset class with low risk and attractive, predictable profit.
LTP: In a sentence or two, what problem are you solving today?
MZV: Private student loans are the second-largest asset class after mortgages, yet most lenders are not offering them. We help financial institutions of all sizes enter this asset class and put their capital to work profitably, without assuming much of the risk associated with launching a new product.
On the borrower side, we enable lenders to offer private student loans to a broader range of student borrowers because not everyone has an 800 FICO score. Through private student loans, banks and credit unions can attract and retain their customer/member base of the future—millennials and Gen Z—which is so critical to the continued growth of these lenders.
LTP: Who are you selling to?
MZV: The ReliaMax Solution, which is our private student loan platform-as-a-service, includes borrower acquisition, origination, servicing, insurance and capital markets execution for banks, credit unions, and alternative lenders. We also provide Connext, our branded private student loan platform that helps our lenders acquire new borrowers.
Our value-added services for financial institutions include things like program design, comprehensive underwriting, default prevention, marketing and customer acquisition support and portfolio liquidity. If a financial institution wants to buy a student loan portfolio as an investable asset, we can also help them acquire the portfolio and convert the servicing onto our platform. We’ve helped many banks to do this over the last couple of years, including – most recently – MetaBank’s $151-million portfolio.
LTP: Why did you start the company?
MZV: By helping banks help students fund their education, everyone benefits – the student, the bank, the community, and the world. That is a core part of my vision for the company and the values of ReliaMax. Every team member is committed to helping students realize their dreams of education.
In 2009, we began insuring private student loans through our subsidiary, ReliaMax Surety Company. Since then, we’ve insured over $3 billion in private student loans and now have 30 years and $15 billion worth of student loan data. This trove of data and analytics going back three decades is what gives us the unique ability to underwrite loans further down into the credit spectrum and price insurance premiums according to the risk. We’re making real loans for real people—mostly in-school loans—not just refinancing for the super prime market. Our lenders love this; we’re giving them a 4%-6% net yield that is fully insured on the principal and interest. And collectively, we’re bringing them an addressable market that’s much larger than the super prime market that many of the newer entrant online lenders are targeting.
LTP: What's the most important change coming to your segment in the next 3-5 years?
MZV: The most important change is that more and more students and their families will use private student loans in place of income, retirement savings, credit cards and home equity lines to fund the education gap. Likewise, we see private student loans taking share from federal student loans, as the government looks to reset its balance sheet.
We know the current White House administration is looking for ways to reduce some of the outstanding federal student loan debt, which now stands at $1.29 trillion. The Wall Street Journal reported that some 40% of federal student loan borrowers are not making repayments. That’s a problem that is unique to federal student loans; private student loan default rates are way below that in the single digits.
One solution would be for the government to sell its loans to private lenders, who can then treat them like an investable asset. Or they might put limits on federal loans that aren’t need-based, like PLUS loans for graduate school or parents, which would position private student loans as an invaluable financing option.
In terms of industry change, private student loans are really an untapped asset class. There’s an addressable market of $172 billion in annual higher education spending that’s not covered by federal aid. Currently, only $10 billion of higher education costs are funded with private student loans, and further opportunity exists in student loan consolidations and refinancing.
As more financial institutions see how easy – low risk and profitable – it is to enter this asset class, we’ll see a stronger demand for origination, servicing, and insurance. More competition in the marketplace will lower the cost of borrowing capital and increase the terms and choices available to students. To put this another way, with more skin in the game, the incentives will grow for lenders, resulting in even better pricing for students. As it stands right now, we have more lending capacity than we have borrowers. We love being in this position and not being reliant on securitization markets.
LTP: What’s your next milestone?
MZV: ReliaMax just announced that we’re now servicing $275 million in private student loans, an increase of nearly 670% from the close of 2015, We also have our eyes on further expansion across in-school, refinance and specialty private student loan programs such as for international medical degrees and for students from abroad that are pursuing their MBA degrees in the US.
This are exciting times for ReliaMax as we are experiencing growth across the board for all our products and in all our markets.
LTP: Anything else you want to say to our audience?
MZV: I’m fond of saying that the private market innovation that can be brought forward to solve this public debt problem is limitless and imaginable. I recently spoke at the Tearsheet Money Conference and discussed five basic ways that banks and alternative lenders can become private student lenders. These boil down to fundamental points such as underwriting, servicing, customer experience, innovation and investing in the asset class. If you have additions to the list, I definitely invite you to connect with ReliaMax on Twitter, and LinkedIn or email us at email@example.com and bring your ideas forward.
LTP: What's one thing you wish customers knew before a sales meeting?
MZV: Private student loans and federal student loans are two very different assets. Many people confuse the two and equate federal student loan headline risk to private student loans. We’re always educating the market on the difference. Most importantly, federal student loans have very limited underwriting, whereas private student loans use stricter, credit-based underwriting—we look at a borrower’s ability to repay the loan over time. This is why private student loan default rates remain low, and why they’re an attractive asset class for banks and credit unions.
LTP: If you could change one thing that financial services people do incorrectly, what would that be?
MZV: It’s more of a perception, but I’d like financial institutions to recognize that they have incredibly sustainable businesses and that some disruptor lenders, despite all their bells and whistles, aren’t necessarily what their customers need or want – nor necessarily will their customers be a target because some of these lenders tend to skim the super prime credit, high-earner market. That leaves many qualified borrowers with fewer options.
Financial institutions, particularly community banks and credit unions, serve a critical role – along with many others – in the higher education ecosystem. They help a student gain affordable financing, whether or not he or she has maxed out on federal aid.
Customers want to know that their bank or credit union has a terrific product they want at the stage of life they’re in; this is what drives lifetime customer value. Customers also like knowing they’ll have a single point of contact over the lifetime of the loan, and options available to them during difficult times – someone with whom they can develop a relationship, talk through their situation and get meaningful advice. Something banks and credit unions should not lose sight of is their role in building the financial wellness aptitudes of their customers. This is very important to the health of our economy and country.
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