With all the excitement around online lending, there are still some spaces that have a long growth runway. One of the most persuasive growth opportunities is private student lending. Macroeconomic and policy changes are contributing to the growth thesis but so too are the number of local lending institutions that want to move into this asset class.
Today’s guest on the podcast is Michael VanErdewyk, the founder and CEO of Reliamax, a platform serving the private student lending business for community banks and credit unions all over the U.S.
Below are highlights of the episode, edited for clarity.
Reliamax as fintech company
Reliamax sits at the intersection of lending, insurance and technology. So, we’re half fintech, half insurtech. We have more technology folks than any other department in the company, so we are a technology company.
Getting into private student lending
First of all, I come from a family of teachers. My dad was a professor, my mom was a teacher, and my two sisters were teachers. The value of an education was always instilled in me. I graduated from Dakota State University in 1983 and shortly after that, got into the insurance business. I’ve been in insurance and financial services for most of 30 years.
Rising costs of higher education
The cost of education continues to increase and the number of kids in school isn’t declining. So, it’s a big opportunity. Really, we have to talk about the cost of education. The cost of higher education in the U.S. today costs over $400 billion a year. About 25 percent of that is free money (grants and scholarships). Another 25 percent is federal student loans. The remainder — about $200 billion a year — is really family contributions.
Only a tiny sliver of that is private student loans. How do borrowers and their families fund higher education then for their children? Many times they use ways they shouldn’t. They take from their retirement accounts, take home equity, or use credit cards. So, the gap for private student loans is big.
The focus on private student loans
We only do private student loans. With the change in the administration, we’re seeing a move towards more private student loans and less federal ones. If you look at the total outstanding student debt, there’s about $1.4 trillion in federal student loans and $100 billion in private student loans, comprising only about 7 percent of total outstanding student debt.
Reliamax’s customer base
Our clients are lenders — banks, credit unions and alternative lenders — and typically the community banks and credit unions. Most haven’t had a student loan business before and they’re looking to get into the asset class. We’re enabling them to enter the asset class, helping them to diversify away from mortgages and auto loans and attract the Millennials/Gen Z that they’re after.
Student loan competition
Some competitors entered this space after 2009 and they’re focused on consolidation/refinancing loans. They’re not focused on the in-school market. They don’t have the data like we do going back 30 years and they haven’t been through an economic downturn. About 75 percent of what Reliamax does is focused on the in-school lending market.
We aren’t really seeing lenders get into the in-school space. It’s still just a few of us competing here. Sallie Mae, Wells Fargo, Discover, PNC, and Citizens would probably be the top in-school lenders.