The idea of student loans is still a relatively new one in many parts of Europe, where university education in several countries is either entirely or largely subsidised by the government. But as that begins to change, and more young people and their families are being required to pony up academic and living fees, a new startup hopes to capitalise on the emerging gap to help them.
Future Finance — a startup based out of Dublin that provides loans to students in Europe using big data algorithms to asses their credit-worthiness — is today announcing a new £119 million ($171 million) in funding. This includes £19 million in equity and £100 million towards future loans made through the platform.
Future Finance is currently live in the UK and Germany with plans to expand further in the region, according to co-founder and CEO Brian Norton — an American with a background in finance who upped sticks and moved to Dublin to build Future Finance in this part of the world.
This latest round brings in some notable investors, and also sheds light on some of the others that have been funding the startup up to now. (Future Finance has raised $266 million, or £185 million, since going live in May 2014.)
Future Finance’s equity investors now include QED Investors (a major VC in U.S. fintech), Blackstone Strategic Opportunity Fund, Colchis Capital, Invus Opportunities, KCK, DW Partners, Fenway Summer Ventures, Ridge Road Partners and 1/0 Capital. And the company also has disclosed that Goldman Sachs has also been backing the company, providing funds for the £25 million in loans paid out on on the platform to date.
The amount loaned so far may sound relatively low but there is a clear sign of more demand: the company says it has had 37,000 applications received to-date and has seen loan growth of over 900% year-on-year.
To the average reader in the U.S., the idea of a student taking out loans to finance his or her higher education is very commonplace. And there are a number of startups out there that either help students get loans in the first place and/or help refinance those they already have, provided either by banks, special loan organizations like Sallie Mae, or by way of federal programs. SoFi and CommonBond are two startups specifically targeting students and refinancing. Other platforms include Lending Club, Prosper and Upstart.
The problem that Future Finance is aiming to solve is one that is still largely nascent in Europe, but is bound to grow over time: While the cost of going to university in Europe is tiny compared to average prices in the U.S., those costs have been on the rise. Traditional banks have yet to fill the funding gap for students after grants, scholarships and government programs, and while students also work through college, sometimes this can become a distraction. This is where Future Finance is stepping in.
In its most mature market, the UK, Norton tells me that the average price for a university undergraduate degree is around £60,000. “The average person can borrow £35,000 from the government on terms that are pretty easy, flexible and student friendly,” he said.
Future Finance aims to make up the difference, providing loans of between £2,500 and £40,000 per each academic year, with the funds typically used both for tuition and living expenses.
The loans are specifically aimed at students and their financing needs, both in terms of how students are assessed and in terms of how they are expected to repay them.
On the assessment side, Norton tells me that what Future Finance does “is similar to other online loans but the primary piece is geared to focus on a person’s education.”
The company aggregates data on what a person is studying, and where, along with other factors around a particular student’s life, and it then combines this with government data and other “proprietary sources” to make an assessment on whether to provide the loan. It’s partnered with 33 universities across the UK to provide loans, and this is likely another source of data for making assessments.
While this may sound like it might be biased to students studying business at prestigious universities, Norton tells me that this isn’t always the case.
“A nursing student from South Bank University, statistically speaking, is more likely to earn more in his or her first year out of college than a person from Cambridge University,” he said. “We are working at both ends of the spectrum.”
On the repayment side, Future Finance aims to provide terms that are more student-friendly than an ordinary bank loan, with ten-year loan terms, no early repayment charges and payment holidays built in. And that’s before you consider that many students aren’t even eligible for bank loans because of a lack of credit history.
While Future Finance plans to expand further in Germany and elsewhere in Europe, it’s own future finance roadmap does not include the U.S., where Norton (remember, he’s an American ex-pat) says he is a “huge fan” of SoFi but believes the loan terms are much more different and less desirable for his company.
“Europe is structurally very different than the U.S.,” he said. “There is a very high ROI on education here,” with more students likely to earn more than they have invested in their educations, which is not always the case in the U.S., where education costs are so high, regardless of whether you end up as a public school teacher or an investment banker.
More likely, the company will explore more markets in Europe to launch its own retail service, as well as eye up how and if it has a prospect as a white-label provider of student loans. Given that many banks have yet to size up and act on this opportunity, there could be a clear opening for this and other startups to make a move.
The still-early opportunity is also something that QED, which backs companies like SoFi, Fundera, CircleUp and others in the finance space, also sees as promising:
“Future Finance’s use of technology and data to democratize higher education is a huge win for students and society,” said Nigel Morris, Managing Partner of QED Investors, in a statement. “We are very impressed with Brian and his team and see enormous potential for the business in what is still a nascent market for student finance in the UK. We are delighted to support Brian and his team to take Future Finance to its next stage of growth.” Notably, Morris was a co-founder of CapitalOne.
Future Finance is not disclosing its valuation in this round. (We’re still trying to find out anyway.)