Much has been written about the student loan crisis in the U.S.
There are now 44 million borrowers who collectively own $1.5 trillion in debt, making it the second-highest consumer debt category behind mortgage loans. Those who entered college in 2017 can expect to borrow nearly $29,000 on average, some sources say.
And as those loan balances have grown, so have the default rates. Over a million people fall into default on their students loans each year (default is defined as failure to make a payment for a year, such that the account is turned over to a third-party debt collector) – and by 2023, it is estimated that some 40 percent of borrowers will fall into default.
Defaulting on a student loan is serious business.
"Negative effects of student loan default can be wage garnishments, tax offsets and other methods of loan collections," said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors. "In addition, some states suspend or revoke state-issued professional licenses, and some states suspend a driver's license because of a defaulted student loan."
Additionally, student loan defaults tend to wipe out credit scores, usually into the deep sub-prime territory. By the time a borrower has defaulted on a student loan, their average FICO is 550, while borrowers who stay current have average scores in the high 600s.
It is a crisis near and dear to the heart of Frank CEO Charlie Javice, as the startup founder was only 25 years old when she founded the firm.
Frank is a financial services startup that helps connect students with financial aid before they start taking on unreasonable amounts of debt.
Javice, a University of Pennsylvania graduate whose career started in banking, began her entrepreneurial quest by looking at credit and designing a lending product to help alleviate the stresses and difficulties students encounter as they attempt to fund their educations.
She found there are a lot of loan products out there already – some good, some bad, others somewhere in between. But students didn’t need another loan product – they needed a way to stop leaving free money on the table in favor of taking on massive amounts of debt. And they needed an ally to help them do that.
Frank is designed to be that ally. Javice noted that even though around 90 percent of applicants qualify for some form of federal aid, that money is mostly left on the table. The reason, she said, is that the FAFSA (Free Application for Federal Student Aid) is so difficult and confusing that 47 percent of students never complete it.
Applying for a loan, on the other hand – particularly in the last decade – is an easy, smooth, frictionless process.
Frank offers an automated, consumer-friendly interface that automates much of the FAFSA, turning it into a four-minute process instead of a frustrating, multiple-hour ordeal.
“This is preventative medicine – we want to help students see what they have and where they are before they take on debt,” Javice said.
Frank started with a pilot program for low-income students at a few high schools in the Bronx. A little more than a year later, Javice estimates her company has helped about 300,000 students each find between $25,000 and $30,000 in aid. That is around $7 billion over four years of college.
But Frank on its own won’t be enough to clean up the $1.5 trillion mess that student loans have become. No matter what anyone is selling, there is no single-shot solution to the problem. In Javice’s opinion, many components of the process need massive work, from how loans are put together to how they are serviced over time to what kind of credit scoring models are used to underwrite them.
“Dumb, blind monkeys could do a better job of credit scoring than we currently do in this country,” she said.
But if the student loan crisis can only be fixed when one single, perfect solution comes along, Javice noted, the student lending crisis will never be fixed. And there are 44 million students carrying $1.5 trillion in debt who can’t afford that answer.