The Biden administration’s recent decision to cancel up to $20,000 in student loans for many existing borrowers came with an important caveat for student debt holders: private loans are excluded from the plan. rescue.
Private loans make up a relatively small share of the national student debt total, but in the 2020-2021 academic year, student borrowers still took out nearly $12.5 billion in non-federal loans, according to the College Board’s latest report on pricing and student aid trends. . That total rose 34% over the past decade after adjusting for inflation, even as total new federal loans fell at the same rate. Private loans are notoriously inflexible and often come with high interest rates, usually making them the most burdensome option for students looking to finance their education.
These are the kinds of statistics that motivated Harrison Hochman, a 23-year-old Stanford graduate, to create Sparrow, a financial search engine that allows potential student borrowers to search and compare alternative loans – or refinance existing federal and non-federal loans – using an application. Hochman launched the website with his friends and co-founders Griffin Morris and Daniel Kahn in 2020 during the Covid-19 pandemic.
“When all of our friends were sent home, we saw firsthand, very intimately, the problem of private student loans and the kind of burden it places on young adults when they graduate from college,” said Hochman. “And we felt compelled to do something.”
Sparrow users submit a short request and Sparrow returns a list of lenders the user is eligible for, along with custom rates. Hochman calls it Expedia for Student Loans.
“Just like Expedia, where you go to a centralized hub and submit a quick form for flights with where you want to go and your dates, for us, you provide information that would help us pre-approve you with lenders on our platform,” he said. “And then, after you find the right loan offer – or with Expedia, the right plane ticket – you click on the lender and upload your documentation to be verified.”
The young company recently raised $5.83 million in a seed investment round led by Sozo Ventures. To date, the company has raised $6.7 million. Sparrow works with 17 lenders, including Sallie Mae, SoFi, Ascent, and College Ave, and Hochman is working to bring smaller lenders to the platform.
“We’re trying to reach out to lenders that are typically quote-unquote ‘offline’,” Hochman said. “These are state-based credit unions and non-profit organizations. These are lenders who have amazing loan programs for borrowers – they have tax advantages and usually they take those tax savings and pass them on to the underlying borrower. But they are built on a monolithic infrastructure and it is difficult to fit in.
The app is free for students and colleges. Sparrow earns its money from lenders who guarantee loan agreements through the site. Each time a Sparrow user takes out a loan with one of the partner lenders, Sparrow receives a percentage of the loan principal as a sort of referral fee. Typically, the company discount is between 1% and 2.5%.
Today, Sparrow covers more than 8,000 colleges and schools at thousands of higher education institutions across the United States.
Similar applications already exist. Credible offers a comparison service that shows users personalized rates from eight partner lenders. But many student loan shopping sites are tied to a specific lender or only allow students to compare options before they know what they qualify for.
Dependent undergraduates can borrow a maximum of $5,500 from the federal government in their first year and slightly larger amounts in subsequent years, for a total direct loan limit of $31,000. (Financially independent undergraduates can borrow a total of $57,500.) With many private college sticker prices starting at $50,000 per year, many students end up looking for additional loans to fund their degrees.
And most students can’t turn to their school’s financial aid office for help with this decision. According to Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, many colleges and universities don’t maintain a list of preferred private lenders — or even help students get loans. private lending – as this is heavily regulated.
Financial aid officers at Pitzer College in California take a “hands-off” approach to alternative loans to avoid additional administrative burdens, says Kara Moore, director of Pitzer’s financial aid office. Pitzer is now one of 17 colleges that refer students seeking a private loan to Sparrow. The company is linked on the college’s financial aid website, and Sparrow provides a personalized link for Pitzer students. The college does not pay for the link and Sparrow does not pay for the advertisement.
Sparrow appealed to Pitzer because it lets students compare personalized rates using a single app, Moore said.
“A student who was using Google to find five different lenders would have to speak to each of them before telling them whether or not they were eligible,” Moore said. “The benefit we’ve seen for Sparrow is that students can get a list of potential lenders without having to apply to each individual lender and then have multiple credit applications.”
Sparrow-linked colleges include Lewis-Clark State College, La Sierra University, Allegheny College, Otis College, Trinity College, The College of Wooster, University of San Diego, Rollins College, Mercer University, Northpoint Bible College, and Pacific University directly.
Hochman has big plans to develop Sparrow in the next few years. He and his co-founders plan to tap into more lenders and more universities, and hopefully add additional features like the ability to take out federal loans using the platform. form.
“We want students to be able to borrow from the platform and really facilitate that process,” he said. “Right now, 17 universities have signed up for the platform where we are their de facto integrated core lending platform, and we are trying to scale it to all universities so we can bring this solution and this technology to as many students as possible. .”