The first school that Manu Smadja and Michael Davis landed for their international student loan company was Harvard University.
It was 2015, about a year after the two began focusing on the then-startup MPOWER Financing. The men — who themselves had Ivy League pedigrees — had met with the university three times and had many other calls to pitch their loans to top schools they thought would have students who were most obviously creditworthy. After a thorough business, operations and legal due diligence process, the university agreed to include them as an option on its website. It all took about six months.
“Winning schools over, winning customers over, was not easy in the early days,” Smadja said. “It just required a lot of perseverance, which I think as an immigrant, both Mike and I kind of had in our DNA almost.”
The company started at the Ivy Leagues. But unlike others in the space, MPOWER, which is a B Corp., hasn’t limited its offering to students at top-tier schools. It works with 350 schools in North America.
How the company started
Smadja, who’s from France, knew himself the barriers students face to obtain loans to go to school in the U.S. When he was studying at the University of Virginia as an undergrad, he wasn’t eligible for U.S. federal loans or most private loans, like many international students. He was able to get through school by working gigs as a tutor and a soccer referee, and his parents were able to help him finance the rest of the way. But he knows that for many students hoping to study abroad, loans may be the only option.
Then, about 15 years after he graduated, an international student from UVA, fearing dropping out, randomly reached out to him for $500 to pay his rent. It was shocking to him that international students still struggled to obtain loans. “I thought, why is this still an issue? Why are banks still not doing anything 15 years later? And how do we tackle this challenge?”
According to a 2019 MPOWER survey, 85% of students who obtained loans through the company would not have been able to study in North America otherwise, Smadja said.
Fewer international students could be a hit on the economy — international students contributed about $45 billion to the U.S. economy in 2018, according to the Department of Commerce. It’s also a revenue loss for universities and a diversity loss for classrooms.
“It’s that straightforward,” Smadja said. “These are students who would never be able to realize their educational dreams.”
Smadja had never started a company before– he was a finance guy and worked as an engagement manager at New York City-based McKinsey and Co. before founding MPOWER. He roped in Davis, a serial entrepreneur he met when the two were studying at INSEAD in Paris. Their goal was to build a loan that international students studying in North America could easily access.
The company is backed by $170 million in capital. Its loans, which come from its balance sheet, warehouse facilities and its original banking partner, Wisconsin-based Bank of Lake Mills, can be as small as $2,001 up to $50,000 for expenses from textbooks, to housing to tuition, Smadja said. They don’t require a U.S. cosigner or a credit score. Instead, MPOWER uses the student’s existing information, such as education and employment information, to decide whether they qualify.
The funding is geared toward international students, but MPOWER also loans to DACA students and certain domestic students, such as young students who are independent from their parents, who often run into the same types of barriers. International undergraduate students and graduate students pay a 13.99% and 11.99% fixed interest rate, respectively, and DACA undergraduate and graduate students pay a 9.99% and 7.99% fixed interest rate, respectively, according to the company’s website. This fits in between the average private student loan fixed interest rate, which ranges from 3.34% to 14.99%, according to NerdWallet.
MPOWER generates more than $10 million in annual revenue and employs more than 100 people who work on jobs such as analytics and marketing and are mostly based in Bangalore, India, Smadja said. It’s backed by investors including San Francisco-based A18 Ventures, Paris-based Breega, and Washington DC-based 1776 Ventures, and its latest funding round of $100 million was from investors including New York City-based Tilden Park Capital Management and King Street Capital Management.
MPOWER also offers immigration support and scholarships for students, guided by its mission, Smadja said. It offers scholarships for underrepresented groups, such as women in STEM and refugees. Support services include immigration process guidance, including sanction letters for visas, and career placement support.