Student debt is at a record high, and this company is cashing in by trying to help

Students celebrate their graduation. Beverly & Pack via flickr

The average debt burden weighing on students graduating from college this year will be a record high.

That spells good news for student loan-focused marketplace lending startup CommonBond.

The New York-based firm announced on September 8 that it has taken on another $US35 million in the form of a Series B round of funding. August Capital led the new funding round, according to Commonbond chief executive David Klein.

The startup is also adding a new member to its board: Hans Morris, a former executive with Citigroup and ex-President of Visa who is now a partner with venture firm Nyca Partners.

The funding round brings CommonBond’s total cash raised to about $US400 million, said Klein. Big name investors include former Citigroup chief executive Vikram Pandit and ex-Thomson Reuters chief Tom Glocer.

The Series B funding round follows the hire of former Maquarie and Morgan Stanley banker Morgan Edwards as its chief financial officer and ex-Citigroup banker Vinayak Gurjar as chief risk officer earlier this year.

The firm in June closed its inaugural securitization of graduate student loans, raising $US100 million in the process. In February it inked a partnership with NelNet, a Nebraska-based loan servicing firm that has committed to buying a portion of the loans the startup generates.

Student loan debt
Rising steadily after the financial crisis, Federal Reserve Bank of New York

Startups like CommonBond, SoFi and LendingClub have gained traction in the student lending arena by seeking out qualified borrowers and marketing refinancing products.

CommonBond has gone out of its way to tap into the most reliable segment of student borrowers — graduate students — instead of undergrads.

The emergence of these lenders has come at a time when banks have withdrawn from the student lending arena, and student debt has been ballooning.

The class of 2015 will graduate with more than $US35,000 in debt on average, according to research from In 2010, student loan debt overtook auto loans and credit cards as Americans’ largest source of non-mortgage debt.

Student loans are especially attractive to investors. Unlike other forms of consumer debt, including home loans and credit card debt, it cannot be discharged via bankruptcy — so the borrower will always face the expectation of repayment.

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