Wharton alums can now invest in others' student loans
December 3, 2012By Emma Jacobs
If Wharton alums can still hear the words "student debt" without breaking a cold sweat, a new business promises them a new investment opportunity.
CommonBond lets graduates of the University of Pennsylvania's business school fund the loans of current, credit-worthy MBA students.
CEO David Klein said the company grew out of his own astonishment at the cost of financing for his own Wharton degree, with fixed interest rates for government and bank loans upwards of 7 percent.
As he saw it, students with good credit scores, good job prospects, and high average starting salaries shouldn't pay that high an interest rate. At the same time, even a 6 percent loan offered a golden business opportunity at a time when conservative investors spooked by the financial crisis were flocking to treasury bonds with interest rates of 2 percent.
"There is a lot of room there for a company to come in and create value for both sides of the market," says Klein, "both the student borrower and the investor -- and also eke out a modest profit for themselves to operate a business."
Klein and co-founder Mike Taormina deferred their second year of school to continue working on a business to do just that. They announced their launch on Wednesday at Wharton.
Klein said the chance to invest in students resonated for alumni. He was unable to say yet whether he and Taormina would go back to Wharton to complete the degrees they're selling as investments.