In the year since its launch, Tuition.io, the company billing itself as the Mint.com for managing student loans, has grown to manage over $1 billion in loans. The company, which provides a monitoring and management service for student loan payments, has just picked up an investment from Raj Date, the former second-in-command at the U.S. Consumer Financial Protection Agency, through Fenway Summer, the advisory and investment firm he helped found.
Tuition.io’s origins prove the adage that necessity is indeed the mother of invention, since the company began when chief executive and company founder Brendon McQueen confronted his own $120,000 in student loans split between 12 different lenders.
McQueen’s story is not unique among the roughly 37 million people in the U.S. who have outstanding student loan debt. Those loan obligations total over $1 trillion and are a huge drain on the finances of debtors, especially given the high interest rate of most government-backed loans.
The majority of federally backed student debt is at an interest rate higher than 6 percent, with more than three-fourths being at an interest rate above 4 percent, according to a February 2013 report from the Center for American Progress. These rates are double or triple the 2 percent rate of government debt, and that disparity has resulted in additional costs for young borrowers who are least able to repay the loans. Indeed, default is a huge problem for government lenders.
Given the demand, it’s no wonder that Tuition.io’s growth has been scorching. When it raised its $1 million seed round in February 2012, the company had just surpassed the $250 million mark in aggregate user debt under management.
At the time, the company’s backers included Mohr Davidow Ventures, early-stage investor Jerry Neumann, New York-based venture firm Mesa+, AF Square’s Troy Carter, Richard Wolpert, Rob Glaser and Launchpad LA.
The company is just now looking at ways to monetize, and has seen early revenue from ads, because its blog generates significant traffic, McQueen said.
“Outstanding student loan debt is hovering at $1.1 trillion which is larger than credit cards or auto loans,” said McQueen. “If you think about it there are a lot of companies out there like CreditKarma or Mint [but] you don’t have a lot of technology-based student loan optimization products out there.”
Venture investors are keenly aware of the demand for products that make student loans easier to manage and pay down. Companies like Simple Tuition and SoFi raised over $100 million in March alone for their lending services for student borrowers.
“The market is pretty profoundly broken,” said Date. “Every other asset class is getting better, but student loan credit performance is getting worse. That tends to matter because of the decision model across the industry that is pretty profoundly flawed.”
For Date, Tuition.io provides a simple, credible solution for student borrowers that often have nowhere else to turn. “The reality is that the average student does not have that firm of a grasp on what he or she actually owes. If you don’t know what you owe it’s harder to do the non-trivial task of dynamically managing your debt load,” Date said.
For McQueen, the rationale behind Tuition.io is even simpler. “People out there are getting hosed pretty bad.”
Photo via Lending Memo