Why Should Delaware care?
The practice of handing taxpayer money to private business has grown more controversial in Delaware in recent years. Last year, outsider Gov. Matt Meyer said he would shift how the state handles the practice. A recent state grant to a student loan startup follows the shift.
Delaware recently awarded nearly $800,000 to a student loan company through a grant that one economic development official noted was “a little bit unusual,” because of the company’s startup status.
Founded last year by a former Sallie Mae executive, Delaware-based Gradbridge currently employs 12 people, according to company officials. They expect to have 49 employees in the coming years at a new headquarters at Newark’s Iron Hill Corporate Center.
The company markets student loans with high-interest rates to college students who had been denied by traditional lenders. Its fixed-rate loans range from about 18% to 23% interest, depending on qualifying factors. By comparison, student lending giant Sallie Mae offers undergrad fixed-rate loans ranging from under 3% to just over 17%.
Gradbridge also joins an existing ecosystem of online lenders based in Delaware that offer nontraditional loans.
While still in its infancy, the company raised $20 million last fall from the private equity firm Acorn Investment Partners. At the time, company officials said the cash infusion would support GradBridge’s launch of a “first-of-its-kind private student loan product exclusively designed for students who have exhausted federal and private options.”
Last week, Delaware’s Council on Development Finance committed additional dollars to the new venture.
The state council’s board — made up of members from government and private businesses — approved GradBridge’s request for a $780,000 grant tied to defined employment goals, and a $7,500 capital expenditure grant.
The terms of the grant contracts were negotiated by the public-private economic development organization Delaware Prosperity Partnership – a separate entity from the Council on Development Finance that receives dollars from the state but is not subject to open records rules.
Noah Olson, director of innovation at the Delaware Prosperity Partnership, noted the award is a “little bit unusual,” because it veers away from the state’s past practice of granting money to more established companies.
But he said the Delaware Prosperity Partnership wants to “see more of these types of companies,” which he described as a venture-backed startup.
“We think that it’s an exciting milestone for us to be supporting growth-stage companies,” Olson said.
Olson also emphasized that the grant is performance-based, meaning Gradbridge needs to hire and retain the promised workers before any dollars are disbursed.
Last year, Gov. Matt Meyer announced plans to focus the state’s economic development efforts on small businesses growth and on workforce development programs instead of dedicating huge sums of taxpayer money to large projects by established companies.
“In my administration, you’re going to see the use of this cash assistance de-emphasized,” Meyer said during the Delaware State Chamber of Commerce’s annual dinner last year.
The governor’s office declined to answer questions asking whether the Gradbridge grants are in line with the governor’s new vision for economic development, and about the company’s practice of marketing high-interest loans to college students.
Meyer’s spokesman instead referred questions to the Delaware Division of Small Business.
When asked whether the state has awarded money to startups in the past, Division of Small Business spokeswoman Andrea Wojcik said in an email that the majority of applications to the Council on Development Finance are from existing companies.
But she said the state does not track grant awards by existing companies versus startups and there is nothing to prohibit a startup from applying.
In a press release announcing Gradbridge’s award, the Delaware Prosperity Partnership said the grant is a “strategic fit” for the governor’s innovation economy agenda. Meyer also was quoted in the press release.
“Delaware is proving once again that it is the best place for high-growth companies to launch, scale and succeed,” Meyer said.
Gradbridge focuses on unserved
Gradbridge markets its loans to college juniors, seniors, and graduate students — a model that CEO Jen O’Donald said allows her company to “pick up really where the other lenders leave off.”
In an interview with Spotlight Delaware, O’Donald said the inspiration for her to launch the company partly came from threats made last year by the federal government to shutter the U.S. Department of Education.
If carried out, it would be a “massive disruption to the student loan industry, to schools, and to students themselves,” she said.
She said her company lends to upperclassmen and graduate students because they might only need one or two loans to “cross the finish line” to graduation. She also said Gradbridge requires a cosigner for its undergraduate loans.
After originating loans, Gradbridge then sells them as assets to other companies.
The startup’s technology centers on what O’Donald calls its custom credit score machine learning model, which it developed in partnership with the consumer credit reporting company, Experian Analytics.
To determine credit worthiness, the model considers FICO scores, past loan delinquencies, and bankruptcy, among other factors, O’Donald said.
Growing Delaware’s existing fintech industry
Gradbridge joins an already rich online lending and fintech industry in Delaware.
Wilmington is home to fintech student loan company College Ave, fintech lender Best Egg, and digital credit card company FairSquare.
Student lender Sallie Mae is headquartered in Newark. And the San Francisco-based online lending giant, SoFi, has locations in Greenville and Claymont.
Other financial institutions headquartered or located in Delaware include BlackRock, Bank of America, Capital One, and JPMorganChase – all of which are increasingly expanding into the fintech field.
Additionally, the University of Delaware houses a Fintech Innovation Hub on its STAR campus.
