Modern Parent: Tools to Cut Student Debt


Just as homeowners struggle to keep up with their home payments during tough economic circumstances, students are having a hard time repaying their loans for college, though a host of online tools can help manage sometimes overwhelming amounts of debt.

Rising tuition costs, increasing government and private loans and unrealistic earnings expectations are leaving many college graduates woefully unprepared to pay back their obligations.

By most estimates, student loan debt is inching near the $1 trillion mark as college tuition has doubled in the price in the last decade. Student debt is not just a problem for the young, as well: nearly 16 percent of it is owed by Americans aged 50 to 59, an often overlooked fact that puts a mature dimension on the face of the problem.

A report by the Consumer Financial Protection Bureau and the Department of Education found the private student loan market grew from less than $5 billion in 2001 to over $20 billion in 2008, and though the figure has declined since then, students borrowing during that time are matriculating now.

“Students were yet another group of consumers that were hurt by the boom and bust of the financial crisis,” wrote Richard Cordray, director of the Consumer Financial Protection Bureau in statement from July. “Too many student loan borrowers were given loans they could not afford and sometimes for more money than they needed. They are now overwhelmed by debt and regret the decisions they made.”

The report found that from 2005-2007, school involvement in student loans began to shrink, students began borrowing more than necessary, and lenders began making exceptions for students with lower credit scores. According to the statement, private lenders gave out money without considering whether borrowers would repay, then bundled and resold the loans to investors to avoid losing money when students defaulted.

“Subprime-style lending went to college, and now students are paying the price,” Education Secretary Arne Duncan, whose department produced the report with the Consumer Financial Protection Bureau.

Saddled with considerable student debt — it isn’t unusual to hear of amounts in the $50,000-$100,000 range — these newly minted graduates continue to head into an economy plagued by recession and increasing joblessness. Not surprisingly, defaults on student loans is growing, while citizens, lawmakers, the higher education community and economists debate the impact of the situation and technology start-ups scramble to discuss it.

Is It a Looming Crisis?

At a congressional hearing this spring, Federal Reserve chairman Ben Bernanke said the rapid growth of education loans requires “careful oversight” from regulators. At the time of the central banker’s comments, a Federal Reserve Bank of New York report pegged the outstanding student loan balance at $870 billion — more than the $693 total credit card debt and the $730 billion people owe in car loans. The situation has many worrying who will pay the price if this bubble bursts in this already fragile economy.

With total student loan debt mounting, some activists are lobbying Congress to discharge student loan debt through personal bankruptcy.

“We want the world and our leaders in Washington to see these are not just numbers on a piece of paper,” says Robert Applebaum, co-founder of studentdebtcrisis.org, a site running a video challenge asking borrowers to submit their student loan horror stories, which viewers rank. “These are real people struggling day-to-day with student debt.”

Others maintain student loans are a problem, but not a crisis, and point to continuing stricter lending practices, government tweaks and college incentives to cut educational costs.

These advocates applaud the Obama administration’s proposal from earlier this year to overhaul federal financial aid system by linking colleges’ eligibility for campus-based programs to their successes in reducing costs for students. Another element of the administration’s plan — creating a shopping sheet which would make it easier to compare financial aid packages and provide earning and employment expectations — is one idea the State University of New York higher education system is exploring.

Tech Tools to Combat Root Causes

State University of New York Chancellor Nancy Zimpher and the SUNY Board of Trustees announced the “SUNY Smart Track Campaign” to combat student debt throughout New York and set up a national model as college students across take on more loan debt than ever before.

“I know firsthand from my investigations as Attorney General into the student loan industry both how vital this money is for students and how tricky this system can be to navigate,” said New York Gov. Andrew Cuomo. “SUNY Smart Track is an innovative, forward-thinking effort to help college students understand the realities of financial aid.”

The SUNY campaign aims to restore transparency about real college costs, financial aid and loan debt accumulated by today’s college students.

SUNY Smart Track aims at reducing debt among students at the system’s 64 colleges and universities by providing students, parents, and campuses with new tools and services to help educate students early on — when they are deciding how much to borrow. The program is also designed to help student borrowers as they complete their degrees and get a job after graduation so they can pay off these student loans.

SUNY’s program features a central online hub to act as a one-stop resource for borrowers and financial aid experts will host online chats via Facebook, Twitter, and other social media to answer questions and offer advice to students and families they move through the financial aid process.

Financial literacy tools, like a net price calculator that enables prospective students to determine total costs, including tuition, room and board and campus fees aim to make the selection more transparent.

The institution’s adoption of the federal Financial Aid Shopping Sheet brings a standard format for presenting financial aid offers along with campus-specific graduation and default rates. In this way, students and their families can compare colleges, weigh the options and make more informed decisions on borrowing.

The U.S. Department of Education partnered with SUNY to develop a data-driven early warning initiative that will use enrollment and federal student load data to show the root causes of loan default, flagging high-risk students and paying special attention to them throughout the process.

The SUNY program was unveiled this fall, joining several other start-ups that hit on similar themes.

What Are Start-ups Serving Up?

Start-ups, launched mostly by students facing these staggering financial challenges, are popping up to help students deal with the debt they’ve already accrued.

Simple Tuition, launched in 2006, provides online tools, tips and advice to college students to help them save money on student loans and also education-related expenses.

The company boasts a loan comparison tool so students can find and compare affordable private and federal loans from providers like Wells Fargo, SallieMae, PNC and SunTrust and provides information for students to find scholarships, tips on managing debt as well as basic financial responsibilities like managing a checking account.

The company, which expects to welcome 6.5 million visitors this year, also recently acquired ValoreBooks, an online textbook marketplace that offers discounts on rentals as well as new and used textbooks, illustrating its intention to expand its suite of savings-focused products. Behind tuition and room and board, textbooks represent the third highest cost for college students.

Alltuition.com walks students through the financial-aid process, from finding eligibility to choosing a loan, to replace bulky financial aid packets, fliers and information with a comprehensive resource for students as they research their possible selections.

The website works with a student’s list of schools to keep track of application deadlines and when they narrow down their choice, offers a shortened application for federal, college and state aid.

Alltuition estimates how much financial aid you’re likely to get, determines what forms you need to file, and, using a common app can help complete the federal FAFSA and the College Scholarship Service Profile. From there, the program points you to other places to find educational dollars, including more forms that your college needs you to complete and a comparison shopping function to find the best loans available.

Sue Khim, a third-year University of Chicago medical student with $50,000 in student debt herself, founded the Chicago-based company in 2010, developing a slew of online tools for students and families to understand managing education debt.

Some of those tools include visual graphs of payment plans, and reminders about when loans are due, all of which have helped users manage and repay over $40 million in debt.

ReadyForZero was founded by Rod Ebrahimi and Ignacio Thayer the same year as Alltuition, and promotes an easy way for students to manage their debt with a slew of online tools.

The startup reports its users have paid more than $12.5 million out of nearly $200 million of debt managed by the service. The company recently launched a new program, Savings Platform, which will show offers to users from ReadyForZero’s financial partners without sharing users’ personal information with the partners in advance. For users already wary of having their financial details floating around, there’s a benefit in being able to securely receive these offers and consider them while remaining anonymous.

This unique feature moves ReadyForZero into the marketplace, giving users a picture of their performance over time, at which point they have a tangible past performance history to offer to lenders to serve as a basis to get better rates.

For example, when suggesting a consolidation loan, ReadyForZero can show you how much money you would save, what the interest rate would be, how much the monthly payments would be reduced by, and how much quicker you would be able to pay off the debt. You can consider and decide to accept the offer, and only then would you be introduced to the financial institution.

Beyond consolidating and managing your debt, ReadyForZero also features a credit card debt-calculator, which tells you how much your debt really hurts you in specific real world terms. For example, $10,000 in credit card debt will take over 27 years to pay off, if making minimum payments. And the toll translates the interest you would pay into familiar terms: 2.7 cappuccinos per week or 24 iPhones over the lifetime of the debt.

Columbia grad Brendon McQueen is responsible for Tuition.io, which he founded in 2011 so users can better manage and optimize their loan obligations. McQueen, like Chin, was inspired by his own experience dealing with 12 loans and more than $120,000 in debt when he graduated in 2009 at the height of recession. With jobs hard to find, McQueen and his friends were having trouble paying back their loans.

“What we’re doing is saving students and graduates time and money while working with the lenders to streamline the entire process so that everybody wins,” he told TechCrunch.

Tuition.io is now helping borrowers manage over $50 million of student loans. The company offers a dashboard of important dates, personalized advice, and online tools, such as customized payment plans, to help make the process of repaying student loans easier.

Student loan borrowers can find information on customized optimization plans that take advantage of little-known and hard-to-understand restructuring options, and the company is exploring expanding the service beyond information to become more action-driven.

Tuition.io’s personal finance tool will help borrowers upload all their loan information, both federal and private, see loan specific detail like who their service is, what they owe and what repayment options exist for that loan — and then visualize the portfolio with smart, dynamic graphs and a calendar tool for keeping track of their due dates. The company also built an expanded algorithm that lets borrowers optimize their loan repayment based on their unique financial situation. This way, you don’t have to learn all the terminology or create any of your own spreadsheets, but instead answer a few quick questions, then select the option that best suits you.


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