Last week, the Biden administration announced its long-awaited student debt forgiveness plan for borrowers who make less than $125,000 and had taken out federal loans for higher education. Individual borrowers will get $10,000 forgiven, while Pell Grant recipients get $20,000. Its fate in the courts is uncertain, but it represents a big step in tackling student debt in the United States.
Still, the student debt crisis in the United States has been ongoing for decades: as of July, around 47 million borrowers owed an estimated $1.75 trillion of outstanding student loan debt between federal and private loans.
A growing number of startups have popped up to tackle this problem from many different angles, such as refinancing student loans at lower interest rates to building in student loan repayment as a benefit that bosses can offer their new employees.
Insider rounded up a list of six startups that operate in the student loan space across a wide variety of verticals and asked their founders to share how their startups and customers are affected by the Biden administration’s student loan forgiveness plan.
Funding according to PitchBook data unless otherwise specified.
What it does: Candidly offers a student debt management platform, which lets users pay down debt and build up their finances.
Total funding: $24.97 million.
Founded in 2016, Candidly provides tools to help users minimize their monthly payments, pay down loans sooner, and advance toward other savings and retirement goals. Its features help users find income-driven plans and other repayment and forgiveness options, according to the company. It has also teamed up with companies and banks including Salesforce and UBS, and promotes its platform as an employment benefit.
“Wealth sounds really aspirational, but what we see in the data around user behavior is that those who have debt first pay down their debt, and only after theat debt is 100% paid, do they start saving,” Candidly CEO Laurel Taylor told Insider.
Taylor lauded the Biden administration’s debt forgiveness plan and income driven repayment proposal, pointing to Candidly’s tools to help users determine their eligibility for various forgiveness plans and to learn ways to invest their savings.
What it does: Funding U offers private student loans to borrowers with no cosigner needed, at a fixed rate. It’s primarily designed for gap financing after a student exhausts all federal loan options.
Total funding: $46.7 million in a combination of equity and debt financing, according to the company
Founded in 2015, Funding U (or Funding University) offers loans to fill in the gaps for student borrowers that otherwise would have a hard time qualifying without a cosigner. Funding U determines eligible borrowers based on a student’s GPA or major, and evaluates their future earning potential in lieu of a traditional credit check.
While the startup does not deal with federal student loans, many of its existing customers have a combination of federal and private debt, meaning the new policy could still be a benefit to them.
“We like the portion of the program that caps Income Based Repayment plan at 5.00% and mandates that borrowers’ unpaid interest will not be added to their loan balance,” said Funding U founder Jeannie Tarkenton. “It does not solve, however, some key problems, one of which is that college costs for undergraduates have soared since the 1980s. One of the reasons for this is that federal funding for education has been decreasing since the 1980s,
putting pressure on colleges to increase fees.”
What it does: Goodly provides student loan repayment as a benefit employers can offer their employees, by automating the payment process and contributing on top of an employee’s payment.
Total funding: $1.42 million
Greg Poulin was inspired to start Goodly after having to take out $80,000 in loans to finish his education at Dartmouth when his father unexpectedly died, Insider previously reported.
In December 2020, he successfully lobbied Congress to pass the Consolidated Appropriations Act of 2021, which allows employers to make tax-free contributions of up to $5,250 a year towards their employees’ student debt, without the payments being included in the employees’ taxable income.
What it does: Peanut Butter helps companies offer student loan assistance programs for their employees.
Total funding: $1.41 million
Peanut Butter help users track their employers’ contributions and progress toward repayment, explore refinancing and repayment options, and seek financial counseling.
“As Peanut Butter clients know, we offer a smooth process to support borrowers paying off their loans,” founder and CEO David Aronson wrote in a blog post last month when Biden’s student loan forgiveness plan was announced.
What it does: Rightfoot integrates consumer debt repayment software into existing payment platforms like fintech companies and benefit and retirement firms. It also offers a student debt repayment benefit for employers’ benefit providers.
Total funding: $6.5 million, according to the company
Founded in 2019, Danielle Pensack cofounded Rightfoot with Deirdre Clute and Will Schmitt at the end of their Stanford MBA program. While student debt repayment is a big chunk of Rightfoot’s business, the startup helps to integrate in-app payments for all kinds of consumer debt.
“Zooming out to look holistically at the consumer debt landscape, forgiving $10-20k in student loans per borrower relieves a relatively small burden. It’s like saying, ‘hey, I know there’s a 300-pound gorilla sitting on your chest, but he just shifted a bit of weight off you, so you can breathe again,'” Pensack said.
What it does: Tuition.io helps employers offer a wide range of education assistance benefits to their workforce.
Total funding: $25.3 million
Tuition.io has a multi-product platform for employees like parents figuring out how to pay for their children’s current or future college education, as well as those paying down their own debt. The company’s tools for parents are designed to help them assess the cost of their kids’ college education, financing options, and even potential financial outcomes of those college choices, CEO Scott Thompson told Insider. For those with their own student loans, Tuition.io’s tools are geared toward managing their debt, by identifying repayment plans and forgiveness options, he said.
“At the essence of the new income driven repayment plan is that there are tradeoffs that need to be considered, that borrowers need help with,” Thompson said. “And that’s what we do — we interact with these borrowers, try to get a complete picture of their financial situation, and our technology or student loan coaches walk them through their best options and help them decide what’s right for them.”
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