Sparrow is free to use for students and colleges. The company makes its money from lenders that ... [+]
The recent Biden administration decision to forgive up to $20,000 in student loans for many existing borrowers came with a significant caveat for student debt holders: private loans are excluded from the relief plan.
Private loans make up a relatively small share of national student debt totals, but during the 2020-21 academic year, student borrowers still took out close to $12.5 billion in nonfederal loans, according to the College Board’s latest Trends in College Pricing and Student Aid report. That total has grown by 34 percent over the past decade after adjusting for inflation, even while new federal loan totals have declined by the same rate. Private loans are notoriously inflexible and often come with high interest rates, typically making them the most burdensome option for students looking to finance their degree.
These are the kinds of statistics that motivated Harrison Hochman, a 23-year-old Stanford graduate, to create Sparrow, a financial search engine that allows prospective student borrowers to shop for and compare alternative loans—or refinance existing federal and nonfederal loans—using one application. Hochman launched the website with his friends and co-founders Griffin Morris and Daniel Kahn in 2020 during the Covid-19 pandemic.
“When all of our friends got sent home, we saw firsthand, very intimately, the problem of private student lending and the type of burden that it thrusts on young adults as they graduate college,” 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.
“Much like Expedia, where you go to a centralized hub and you submit a quick form for flights with where you want to go and your dates, for 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 airline ticket—you click through to the lender and you upload your documentation to get verified.”
The fledgling company recently raised $5.83 million in a seed investment round led by Sozo Ventures. To date, the company has raised $6.7 million. Sparrow works 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 usually are quote-unquote ‘offline,’” Hochman said. “These are credit unions and state-based nonprofits. These are lenders that have amazing loan programs for borrowers—they are tax advantaged, and usually what they do is they take that tax savings and they pass it across to the underlying borrower. But they’re built upon monolithic infrastructure and it’s difficult to integrate with them.”
The app is free to use for students and colleges. Sparrow makes its money from lenders that secure loan agreements through the site. Whenever a Sparrow user takes out a loan with one of the partnered lenders, Sparrow receives a percentage of the loan principal as a kind of referral fee. Typically, the company’s cut falls between 1% and 2.5%.
Today, Sparrow covers more than 8,000 colleges and schools at 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 partnered lenders. But many student loan shopping sites are linked to a specific lender, or only allow students to compare options prior to learning what they are eligible for.
Dependent undergraduate students can borrow a maximum of $5,500 from the federal government their freshman year and slightly higher amounts in the following years, for a total direct loan limit of $31,000. (Financially independent undergraduates can borrow $57,500 in total.) With many private college sticker prices starting at $50,000 a year, lots of students end up seeking additional loans to finance their degrees.
And most students can’t turn to their school’s financial aid office for help making that decision. Many colleges and universities do not maintain a list of preferred private lenders—or even assist students in taking out private loans—because doing so is heavily regulated, according to Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators.
Financial aid officers at Pitzer College in California take a “hands-off” approach to alternative lending to avoid the additional administrative burdens, says Kara Moore, director of the Pitzer financial aid office. Pitzer is now one of 17 colleges that route students who are looking for a private loan to Sparrow. The company is linked on the college’s financial aid website, and Sparrow provides a customized link for Pitzer students. The college doesn’t pay for the link and Sparrow doesn’t pay for the advertising.
Sparrow was appealing to Pitzer because it allows students to compare personalized rates using one application, Moore said.
“A student who was using Google to come up with five different lenders would have to apply to each one of them before they tell them whether or not they’re eligible,” Moore said. “The benefit we saw to Sparrow is that students can get a list of potential lenders without having to apply to each individual lender and then have multiple credit inquiries.”
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 that link to Sparrow directly.
Hochman has big plans to grow Sparrow in the next few years. He and his co-founders plan to bring on more lenders and more universities, and hopefully add additional features like the ability to take out federal loans using the platform.
“We want students to be able to borrow on the platform and to actually facilitate that process,” he said. “Right now, we have 17 universities signed up to the platform where we are their de facto integrated core lending platform, and we’re trying to scale that across the universities so that we can bring this solution and technology to as many students as possible.”
