With over $1.4 trillion in total student loan debt in the U.S., refinancing is growing in popularity as young professionals seek to get the lowest rates at manageable payment terms. With upwards of 44 million people currently paying off student loan debt, refinancing is a trend that’s quickly picking up steam.
For banks, this represents a huge opportunity to help their existing customers refinance student loans, as well as attract new ones. But with established fintech players like SoFi and CommonBond already established in the student debt refinancing space, banks are beginning to develop technology-oriented partnerships to compete in a still underserved market.
Consider the case of WSFS Financial Corp., headquartered in Wilmington, Delaware, which has 77 offices in Delaware, Pennsylvania, Virginia and Nevada. In addition to its core banking services, WSFS realized there was an opportunity to expand its consumer lending portfolio to a new generation of customers—mainly students and recent college graduates.
Given this demographic’s average student debt of $35,000, there was an obvious opportunity for the bank to offer a student loan and refinancing product. At the time, however, WSFS lacked the internal technology resources to gain traction in the market. This, in addition to regulatory and compliance hurdles related to the student lending asset class, led WSFS to seek out a technology partner with experience in the student lending space.
The result was a partnership with LendKey, a lending platform and online marketplace that enables consumers to easily refinance their student loans. New York-based LendKey works with over 300 credit union clients, with a combined loan portfolio of over $700 million, to provide technology that enables consumers to find the best refinancing options at their local credit unions.
“We were interested in partnering [with LendKey] because we didn’t really have a student loan program, and they have a very good one, as well as a good delivery method to get to borrowers,” explains Lisa Brubaker, senior vice president and director of retail strategy at WSFS. “It helped fill our product gap.”
With WSFS’s student loan refinancing offerings available on the LendKey marketplace, WSFS was in position to enter the market with an experienced technology partner. LendKey also allowed WSFS to set the credit risk and underwriting standards for all loans, ensuring a balanced lending portfolio. LendKey helped WSFS’s student refinancing program to comply with all regulations. The new venture was launched once the two companies had agreed to team up.
Initially, WSFS relied on its own internal pricing on student loan products, and although its rates and offerings were solid, WSFS had entered the market rather quietly. The promotional support was light, and pricing wasn’t competitive with many other lenders. During the first two years of the program, WSFS generated less than $1 million in total loan disbursements—not the kind of market traction that was hoped for.
What followed next is indicative of what makes WSFS’s partnership with LendKey so innovative and (now) successful. In 2016, WFSF engaged LendKey’s account management team, seeking LendKey’s expertise on how the program could be more visible and competitive, without significantly impacting credit risk. The LendKey team evaluated WSFS’ competitiveness in the student refinancing market and made some recommendations. In response, WSFS repriced its loan program and placed itself prominently on the LendKey Network, a market for lenders to both directly promote and fulfill refinancing loans. With this pivot, WSFS’s refinancing program became more readily available to borrowers in every state within the bank’s market footprint.
Since the repricing and strategic shift to the LendKey Network, WSFS has been experiencing significant success in the student loan refinancing marketplace. WSFS’s student loan portfolio volume has grown by a whopping 54,000 percent since 2013, the year prior to the initiation of the LendKey partnership. And by performing an initial credit check on all applicants, LendKey is helping WSFS make faster decisions on whether to approve individual borrowers.
Today, LendKey continues to work with WSFS to enhance its student lending products, providing additional data analysis and credit risk reporting. LendKey’s insights-driven approach is enabling WSFS to grow its portfolio and reach new customers in a highly competitive marketing—while simultaneously maintaining strong credit risk controls.
“Our view is to take the best-of-breed from marketplace lenders [like LendKey] to deliver to our customers without losing that personal touch that we value,” Brubaker says.