In its early days, Social Finance made loans only to borrowers who had attended name-brand universities. Graduates of elite colleges were paying relatively high interest rates on federal student loans even though they represented a low risk, and the Silicon Valley startup saw in that mispricing a chance to make money.

SoFi CEO Mike Cagney noted in a 2013 interview that traditional banks were aware of this opportunity but were unwilling to pursue it. If a bank charged San Jose State students more than their peers at Stanford, it would create a perception problem, he said.

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