Student Loan App Sparrow Raises $7 Million in Bid to Simplify Private Loans

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The Biden administration’s recent decision to forgive up to $20,000 in student loans for many existing borrowers brought an important caveat to student debt holders: Private loans are excluded from the relief plan.

Private loans make up a relatively small portion of total student debt, but during the 2020-21 academic year, student borrowers still took out nearly $12.5 billion in non-federal loans, according to the latest Trends in College Pricing and Student Aid report from the University of Applied Sciences. College Board. That total has risen 34 percent in the past decade, after adjusting for inflation, even as totals of new federal loans have fallen by the same percentage. Private loans are notoriously inflexible and often have high interest rates, usually making them the most onerous option for students looking to fund their degree.

These are the kinds of stats that prompted Harrison Hochman, a 23-year-old Stanford graduate to create Sparrow, a financial search engine that allows prospective student borrowers to search and compare alternative loans — or refinance existing federal and non-federal loans — using of one application. Hochman launched the website along with his friends and co-founders Griffin Morris and Daniel Kahn in 2020 during the Covid-19 pandemic.

“When all our friends were sent home, we saw firsthand, very intimately, the problem of private student loans and the kind of burden that young adults put on when they graduate,” Hochman said. “And we felt moved to do something.”

Sparrow users submit a short application and Sparrow returns a list of lenders the user is eligible for, as well as personalized rates. Hochman calls it the Expedia for student loans.

“Just like Expedia, where you go to a centralized hub and submit a quick flight form with where you want to go and your dates, to us, you provide information that would help us pre-approve you with lenders on our platform, he said. “And then upon finding the right loan offer — or with Expedia, the right plane ticket — click through to the lender and upload your documentation to get verified.”

The fledgling company recently raised $5.83 million in an investment round led by Sozo Ventures. To date, the company has raised $6.7 million. Sparrow is working with 17 lenders, including Sallie Mae, SoFi, Ascent and College Ave, and Hochman is working to bring smaller lenders to the platform.

“We’re trying to expand to lenders that are usually ‘offline’ with no quotes,” Hochman said. “These are credit unions and state-based nonprofits. These are lenders that have great loan programs for borrowers – they are tax-advantaged, and usually they take those tax savings and pass them on to the underlying borrower. But they are built on a monolithic infrastructure and it is difficult to integrate with it.”

The app is free to use for students and colleges. Sparrow makes his money from lenders who take out loan agreements through the site. Whenever a Sparrow user takes out a loan with one of the partner borrowers, Sparrow receives a percentage of the principal of the loan as a kind of referral fee. Typically, the company’s reduction falls between 1% and 2.5%.

Today, Sparrow covers more than 8,000 colleges and schools from thousands of higher education institutions in the United States.

Similar apps already exist. Credible offers a comparison service that shows users personalized rates from eight collaborating lenders. But many student loan shopping sites are tied to a specific lender, or just let students compare options before learning what they qualify for.

Dependent undergraduate students can borrow up to $5,500 from the federal government in their first year and slightly higher amounts in subsequent years, for a total direct loan limit of $31,000. (Financially independent students can borrow a total of $57,500.) With many private university sticker prices starting at $50,000 per year, many students end up seeking additional loans to fund their degrees.

And most students cannot turn to their school’s financial aid office for help making that decision. According to Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, many colleges and universities don’t keep a list of preferred private lenders — or even help students take out private loans — because it’s highly regulated.

Financial aid workers at Pitzer College in California are taking a “hands-off” approach to alternative loans to avoid the additional administrative burden, said Kara Moore, director of Pitzer’s financial aid office. Pitzer is now one of 17 colleges that refer students seeking a private loan to Sparrow. The company is linked on the college’s financial aid website, and Sparrow provides a custom link for Pitzer students. The college doesn’t pay for the link and Sparrow doesn’t pay for the advertising.

Sparrow was attractive to Pitzer because it allows students to compare personalized rates with one application, Moore said.

“A college student who used Google to come up with five different lenders would have to apply to each of them before telling them whether or not they qualify,” Moore said. “The benefit we saw for Sparrow is that students can get a list of potential lenders without having to sign up with each individual lender and then have multiple credit applications.”

Lewis-Clark State College, La Sierra University, Allegheny College, Otis College, Trinity College, The College of Wooster, the University of San Diego, Rollins College, Mercer University, Northpoint Bible College, and Pacific University are among the colleges linking to Sparrow straight away.

Hochman has big plans to grow Sparrow in the coming years. He and his co-founders plan to attract more lenders and more universities, and hopefully add additional features such as the ability to take out federal loans using the platform.

“We want students to be able to borrow on the platform and actually facilitate that process,” he says. “Right now we have 17 universities signed up to the platform where we are their de facto integrated core lending platform, and we are trying to scale that across all universities so we can bring this solution and technology to as many students as possible.”

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