First Marblehead Corp., a Boston provider of outsourcing services for private student loans, has signed a six-month contract to provide such services to FindTuition.com, a unit of Chicago's CareerBuilder Inc.
Starting today FindTuition.com will market loans funded by a First Marblehead partner, Charter One Bank, to the 3 million students who use the Web site to research financial aid packages. First Marblehead will do the back-office work on the loans, and American Education Services, a division of the Pennsylvania Higher Education Assistance Agency, will service them.
FindTuitition.com said that if the relationship proves "successful" it will expand the contract to include First Marblehead's other banking partners, which include Citigroup Inc. and JPMorgan Chase & Co.
Don Peck, First Marblehead's chief financial officer, said it is "looking at various forms of alternative media to get the word out" about private student loans.
Only 6% of the more than 27,000 consumers First Marblehead surveyed recently said they were aware that private loans could help pay for college, he said.
The Internet is "a natural fit for anyone out there marketing private student loans."
Dan Meyers, First Marblehead's chairman and chief executive, said during a conference call with investors last month, "Building top-of-mind awareness for private loans among students and parents" would be a key growth driver for his company.
"Given that we expect private education loan volume to top $13 billion for the current academic year, we intend to enhance our competitive position," he said.
With tuition increases growing more quickly than inflation, it is increasingly difficult for students to finance their education using only government loans, Mr. Meyers said.
David Hartung, a senior director at Fitch Inc., said, "More and more lenders are putting together private loan programs to supplement their government loan offerings."
Schools are also fueling the growth in the private loan market, he said. "Schools want to see lenders offer a suite of products, including private loans."
FindTuition.com previously provided links to online applications only for government loans.
Its general manager, Dave Smith, said that after talking to several potential partners, FindTutition.com chose First Marblehead because it "offered the greatest breadth of services."
"We wanted a very big player in the market," Mr. Smith said. Students are "going to go to private loans no matter what."
Matt Snowling, an analyst at Friedman, Billings, Ramsey & Co. Inc., said that First Marblehead "is branching out beyond entities in the banking industry" and that the Web is a smart way to reach "the new generation of students coming up."
But he warned there is little evidence so far that online marketing is particularly effective for student loans - a limitation Mr. Smith acknowledged.
"The success that banks have had in getting people to apply online has not been great," Mr. Smith said.
"We're still figuring out what is the best way to generate an [online] application."
Mr. Hartung said partnering with First Marblehead makes sense for companies that want to break into private student lending. "As a lender, if you want to be in the student lending business, they offer a dummy-proof product. They do all the work."
Mr. Snowling agreed with that assessment.
"Because the private student loan is a fairly new asset, there isn't a whole lot of data on how to price it ... which is keeping a lot of competition out of the market."
