Home lending fintech expands into student loan refis

Figure Technologies, a fintech specializing in home equity lending, is expanding into student loan refinancing.

The San Francisco company cited the combination of lower interest rates and $1.4 trillion in outstanding student loan debt among the reasons it is interested in the market. Student loan refinancing complements its home equity line of credit, Figure says, and the same process it uses to make HELOCs could give it a speed advantage in student lending.

“We think we can take the same mousetrap with our really quick process to originate HELOCs and rejigger that process to use it for student loans,” Chief Financial Officer TJ Milani said in an interview. “Many other lenders in the space for student loans still have some paper or manual process.”

Outstanding student loan debt has more than doubled over the last decade, with roughly 92% of it held by the federal government.

Student loan refinancing has emerged as an attractive product for banks and nonbanks seeking to cultivate loyalty among debt-saddled millennials who have begun to establish their financial lives.

Some banks, including Citizens Financial Group in Providence, R.I., and First Republic Bank in San Francisco, directly refinance student loans. Last year, Fifth Third Bancorp in Cincinnati established a referral partnership with CommonBond. More recently, KeyCorp in Cleveland bought the fintech Laurel Road, which refinances student loans largely for medical professionals and lawyers.

SoFi and CommonBond are among the fintech lenders that also refinance student loans.

Figure will refinance student loans from $5,000 to $250,000, Milani said. Interest rates will range from 3.49% to 6.99% for fixed-rate loans and 2.49% to 4.99% for variable-rate loans. Borrowers must have completed a degree from a Title IV school to qualify, he said.

Milani said that Figure launched its student loan refi product late last week and has not yet completed any transactions, although it has some applications in the pipeline.

Founded by former SoFi CEO Mike Cagney, Figure has originated about $603 million of home equity lines of credit since it launched that product a year ago.

Its origination process for home equity lending and student loan refinancing rests on a blockchain technology it has dubbed Provenance. The firm says that using the blockchain to originate loans allows it to cut out the paperwork and save time. Figure anticipates it will be able to process student loan applications within five minutes and fund them within three to five days, which includes a three-day rescission period.

Milani also said that originating loans with the blockchain will help Figure command a higher premium for those loans when it securitizes and sells them.

“There’s less origination defects, less trading defects, there’s better settlement, there’s better visibility into the collateral because we’re using blockchain,” he said. “Buyers will be willing to pay me a higher premium for those loans than if I wasn’t using blockchain technology, and I can take that higher premium and pass those savings on to consumers.”