Business & Tech

First Republic Bank buys student loan repayment startup

A two-year-old Boston technology company that helps businesses manage their student loan repayment benefits has been bought by San Francisco-based First Republic Bank.

The Silicon Valley bank on Monday announced its purchase of Gradifi Inc. First Republic did not disclose the purchase price, but said it would have no material impact on its earnings or capital.

Gradifi will remain in Boston and its founder Tim DeMello, along with other senior managers, will stay in place and operate the company as a subsidiary.

Advertisement

“This just gives us tremendous expansion opportunities,” DeMello said.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

Gradifi plans to hire another 10 employees to add to its staff of 27 and open offices in markets where First Republic is active, including New York, San Francisco, Los Angeles, and Palo Alto, Calif.

Gradifi has been at the forefront of the emerging student loan repayment marketplace. Companies interested in attracting and keeping young workers are increasingly offering to help them pay off their student loans, usually contributing up to $10,000 over several years. Gradifi provides the technology to help these companies ensure that payments are going directly to lenders.

PricewaterhouseCoopers, Natixis Global Asset Management, and Penguin Random House are among Gradifi’s largest clients.

First Republic, which targets wealthier customers and provided Facebook founder Mark Zuckerberg with a jumbo mortgage, has recently expanded into student loan refinancing and the bank sees this as a growing marketplace. Americans have $1.3 trillion in student loan debt.

Advertisement

“As education costs and student loan debt continue to rise, offering a student loan repayment benefit for employees is increasingly valuable,” Jim Herbert, the chief executive officer of First Republic Bank, said in a statement.

DeMello said Gradifi had been in conversations with five financial institutions in the past year to be bought, but that the First Republic deal came together in six weeks. The bank’s more hands-off approach was appealing, DeMello said.

“We wanted to be an independent brand and run the business out of Boston,” he said. “We didn’t want to be a product in somebody else’s arsenal.”

But Gradifi will benefit from access to First Republic’s corporate clients and its balance sheet. DeMello said some Fortune 500 companies that wanted to provide the student loan repayment benefit to their employees were hesitant to sign on with Gradifi because the company was a startup without a large customer-service team.

“Now we have a $65 billion bank behind us,” he said.

Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.