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Mike Cagney

CEO and Cofounder, SoFi

ANYONE WITH A STUDENT LOAN knows the system sucks. It’s expensive; it’s confusing. It’s what Mike Cagney, CEO and cofounder of a social finance company called SoFi, has dedicated his life to fixing.

“What’s happened is that the cost of education [in the United States] has ramped up faster than inflation,” Cagney explains. “It’s to the point where… it isn’t always worth the value.”

This isn’t news: Skyrocketing tuition has forced students to borrow exorbitant amounts. So, even though interest rates are at a historical low, school still costs more than ever. And with around $1 trillion owed, student debt is a national epidemic surpassing both credit cards and auto loans. (We’d suggest a sorrow-drowning cocktail, but many victims aren’t old enough to drink.)

“And these individuals will never be able to buy a home — never be able to do the same things their parents did having not had this debt,” Cagney concludes. “It’s crushing.”

We can ask schools to charge less, but the real issue is that lenders like Sallie Mae charge “one-size-fits-all,” fixed interest rates. SoFi disrupted that model by allowing borrowers to refinance that debt into a lower rate after graduation, saving an average of $19K per student. And while the idea of refinancing isn’t exactly new, it’s the way SoFi refinances: They underwrite borrowers based on where they went to school, what their degree is and their income. For the first time ever, based on their belief in you to succeed. 

Fixing the student loan crisis

SINCE THE 1990s, it’s become increasingly easy to borrow money for school. And in turn, universities have jacked up tuition — an unfortunate cycle in which only the borrower, the student, suffers.

“[A relatively high] interest rate actually makes sense while you’re in school,” Cagney asserts. “Because there are so many unknowns — you might not graduate; you might change majors. Your lender is undertaking a risk.”

The issue comes when, after graduation, you have a job. You’ve demonstrated your ability to pay off that debt, but are stuck paying an equivalent interest rate to your Chem 101 self. That 6-7% interest, which once seemed so low, can still prevent you from buying a home or even starting a family when tuition’s that high.

“At that point, such a high interest rate stops making sense — it isn’t commensurate with the level of risk that you are,” he continues. “But no lender, no bank had ever said, ‘What determines a person’s rate should go far beyond a FICO score.’”

What it really boils down to is this: Banks don’t care about Millennials. They care about our parents — about 60+ baby boomers. So, until we’re old enough to shop for a mortgage, we can basically count ourselves out of financial product planning. That is, until SoFi.

So, student loans.

A 6% interest rate while you’re in school actually makes sense because there are so many unknowns.”
Mike Cagney - CEO and Cofounder of SoFi
SoFi has refinanced over 85,000 loans; only 17 have defaulted.”

THE IDEA BEHIND SOFI comes from California — from Stanford’s Graduate School of Business. During a 2010 fellowship, Cagney, who has a background in finance, relished a “welcome break from the blinking world of Bloomberg screens.”

“And what struck me was: [Stanford] students were paying 6.8-7% loan rates, even though no one had defaulted at that school in 25 years. It didn’t seem like an appropriate level of interest for that kind of risk, and it wasn’t a good deal. That was really the genesis for SoFi.”

SoFi was born one year later with a proprietary algorithm that, as we mentioned, underwrites students on personal factors such as their degree, job, etc. It takes about 90 seconds to apply via their online calculator, and then you know if you’re going to save money.

And while you might think SoFi’s ideal candidate is someone graduating from Stanford’s B-School with a job in investment banking, that’s not the case.

“Our decisions aren’t about ‘good’ jobs and ‘good’ schools in the way you might think… They’re about minimizing volatility,” Cagney explains. “Our favorite occupation is actually nursing because they have such job stability. People always need nurses — if they lose their job, we’re going to be able to get them reemployed quickly. There’s minimal risk.”


Our favorite occupation is actually nursing... if they lose their job, we're going to be able to get them reemployed quickly.”
Mike Cagney - CEO and Cofounder of SoFi

IT’S PRETTY SIMPLE: SoFi was the first company to see their borrowers as members, not customers. And it’s apparent in every aspect of their business, from the humanistic way they underwrite loans to their pledge to help you find jobs to their emergence as a minor dating service for users. (Yup, they will actually set you up.)

“Millennials are a very engaged, very vocal demographic,” Cagney explains. “And that’s where the real disruption happened — when they started demanding more from their financial partners, starting with the fact that they actually be partners. All SoFi did was listen.”

So, it’s not shocking that SoFi gets 50% of its business from referrals. Or that only 17 of their 85,000 borrowers to date have ever defaulted. (Half of which were from death.)

“This is the banking of the future,” he concludes.

To learn more about SoFi, visit them on their website. And to hear more from Mike Cagney, be sure to check out our video interview.

Members, Not Customers

Millennials are a very engaged, very vocal demographic... All SoFi did was listen.”


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