Two banks take equity stakes in online student lender CommonBond

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Two midsize banks are among the investors in a new equity funding round for the online student lender CommonBond.

The $50 million financing round was led by a subsidiary of Cincinnati-based Fifth Third Bancorp, with additional participants that included San Francisco-based First Republic Bank.

CommonBond makes private student loans to undergraduate and graduate students, and it also refinances education debt for college graduates. Since the New York-based firm was founded in 2011, it has financed more than $1.5 billion worth of loans.

The company’s latest funding round marks the first time that banks have taken a stake in CommonBond, which has raised more than $130 million in equity funding over the last several years.

CommonBond CEO David Klein said in an interview Tuesday that his company’s strengths, which include technological chops, are complementary to those of banks.

He said that for now, CommonBond will remain focused on the education finance segment, though the company does plan eventually to provide a broader array of financial products to its customers.

When asked how the firm plans to use the new equity funding, Klein said, “We plan on continuing our growth trajectory and investing pretty heavily in technology.”

Student loans offer an opportunity for banks to establish long-term relationships with young customers, and both Fifth Third and First Republic have taken an interest in the market in recent years.

In late 2016, the $88 billion-asset First Republic bought Gradifi, a startup that works with employers to help workers pay down their student loans.

And last fall, Fifth Third introduced a stand-alone mobile app designed to help customers pay off their student loans, part of an effort to attract and maintain more millennial customers.

“At Fifth Third, we recognize that student debt is the number one challenge our millennial customers face,” Tim Spence, head of payments, strategy and digital solutions at the $142 billion-asset bank, said in a press release Wednesday.

“We are pleased to support CommonBond’s continued growth and look forward to working with them to bring powerful capabilities to market.”

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