Topics Covered in the Interview
- Andy’s personal journey with student loan debt
- The basics of what Student Loan Hero does
- Student loan repayment and consolidation options
- The various calculators Student Loan Hero offers
- How Andy and his partners started Student Loan Hero
Resources Mentioned in the Interview
Transcript of Interview
Rob: Andy, welcome to the show.Andy: Thanks for having me, Rob.Rob: Hey, I appreciate your time today. So you’re the founder of Student Loan Hero.
Rob: I know from readers and listeners that have emailed me. I’ve got a ton of folks who listen that either have student loans or they’re parents of children who have student loans, so we’re happy to have you on the show today.
Why don’t you tell everyone a little bit about your background and how you got into this business of student loans?
Andy: Yeah, so unfortunately, I graduated from college with about $100,000 is student loan debt. And when I graduated I had 16 different loans, and they were spread across three different services. So every single months I’d have to log into three different servicing platforms to figure out what my monthly payments were and when they were due.
On top of that, I really wanted to create a financial strategy. I was trying to figure out how much interest I was paying on the principal. I was trying to figure out when my pay-off day was going to be, and the servicers weren’t telling me that information. So I have to take all this information from the servicing platforms and move it into Excel where I was building my own repayment plans. It was just really fragmented and really confusing.
I’d call the student loans companies, but nobody was really helping me. I actually defaulted on my student loans at one point. I started a company a few years ago, and we were in the beginning stages where we weren’t making a lot of money and, unfortunately, I defaulted.
During this whole process, nobody was helping me. Nobody was providing smart financial advice. Fast-forwarding a few years, we were fortunate enough to have a software development company that — my business partners and I sat down and decided we really wanted to start building out our product.
I tossed the idea of ‘student loan hero’ out there, and the timing was right. We could really provide a lot of value to student loan borrowers like myself. So, I don’t know if you just want to jump in and talk about what—
Rob: About Student Loan Hero? I do. But I’m an attorney by day, so, for better or worse, I hear your answer, and I think of 47 questions I want to ask you. So let me dive into your story for a minute — $100,000 in student loans, what was your degree in?
Rob: When you look back on that, if you could do it all over again, do you think you’d still graduate with $100,000 in student loans?
Andy: If I was 18 years old when I first signed on the dotted line, yeah, I think I would do it all over again. You have no idea when you’re making that decision— You read the advertisements the colleges send you saying, “Get the life that you deserve. Get the life that you want. “
They tell you the average student walks out of there with an average $80,000 salary, and a lot of this is just not true. It’s a very emotional decision for an 18-year-old to make when they’re pulling the trigger on a $30,000 or $80,000 loan.
Rob: Well, of course you’re doing it one year at a time. You know you plan to get a degree in four years or whatever. But when you first went to school and first signed those loans, did you have a thought in mind that you’d be $100,000 in debt or were you really just not thinking that way?
Andy: No. The financial aid office at most colleges do a really good job at getting you to find the funding for the following year and enrolling you, but they don’t really keep you conscious of the debt you’re accruing. And colleges don’t do a really good job of helping you analysis the ROI of attending that institution. So no, it’s not at the forefront of any young college student’s mind.
Rob: It’s almost as if it’s a conflict of interest. I mean, the schools want you to get the loans, to get the money to pay the tuition – and not to rag on student aid offices at universities – but it is an interesting dynamic.
Why 16 loans? By the way, it’s been awhile since I’ve been in school, so I think the school loan system is a good bit different but is that just the way it works? You graduate typically with a large number of student loans?
Andy: The education finance market in the United States is set up a lot different than, for example, Australia or Great Britain. Typically, in Australia you get a line of credit. You can use it all four years at school, and your repayment is typically based on your income.
In the US, you need to get new student loans every single year. The goal is to max out your federal student loans because they’re more favorable terms of rates and conditions, so I was maxing out my federal loans. And then I’d hit that cap around $30,000, $35,000 (I was going to a private school). Then I’d have to subsidize the rest of the cost with private student loans.
And when you take out your federal student loans, you have both subsidized and unsubsidized federal loans, so you might take out two to four federal student loans a year, and then you might also have to subsidize that with one or two private student loans a year.
You’re doing this every year, so you might have four or five loans a year, and all of the sudden at the end of you four (years in school) you’ll have 10 to 20 or potentially, 30 student loans. We work with lawyers who have upwards of $60,000 in school loans.
Defaulting on Student Loans
Rob: It’s just crazy, absolutely crazy! So one last question before we jump into Student Loan Hero. You said that as you were building Student Loan Hero you ended up defaulting on your school loans.
What was that process like emotionally? Did you call the servicers and tell them? Or did you start getting calls from debt collectors? What did you experience through that process?
Andy: Yeah. Unfortunately, a lot of young adults, when they get out of school will move to a city or move out of mom and dad’s house, and if they don’t change their address with the loan servicer, they’re not going to receive the bills in the mail. And, unfortunately, that’s what happened to me.
I moved to Asia to get our software development company off the ground. I was boot-strapping if over there, and I lost track of payments. I had 16 loans with three or four different servicers at the time, and it was hard to keep track of all that stuff. It was a very confusing, frustrating and emotional time of my life.
It created a lot of conflict and emotional struggle between my parents and myself because they had co-signed on a few of the loans. Luckily, I was able to repair that relationship as soon as I started paying on the student loans. But, I can really empathize and sympathize with the borrowers we work with because it’s just a really fragmented and confusing mess.
Rob: Yeah. You said you had a degree in Economics, right?
Rob: How did you go from a degree in Economics to a web development company?
Andy: At the end of the day I’m a capitalist, and I think my economics course has taught me that. I just saw a good opportunity to start building web sites and software for folks. I literally started a software development company with no knowledge of software development because we’re out building really very simple blogs and websites at first and obviously, you learn as you progress.
I’ve been an entrepreneur since I was 15. My parents were entrepreneurs. This is my fourth company— I just have a lot of fun doing it. I really enjoy building businesses.
The Basics of Student Loan Hero
Rob: Okay, good. Well, let’s hear about Student Loan Hero. Tell us how it began and how it can help folks.
Andy: Like I said from my own personal story, I was trying to create a financial strategy that made sense, and I was pulling in all this information from my servicers, and it was just super confusing. It wasn’t automated, so I had to do it every month.
Fast forward 2 1/2 years, I was talking to my business partners and said, “Hey, this is a great idea. Let’s build out some automated tools that can help a student loan borrower.”
What Student Loan Hero actually does is, if a borrower signs up at studentloanhero.com, they could aggregate both their federal loans and their private loan data in one single student loan dashboard. So, you can aggregate all their loans— that’s the first problem we’re solving for the borrower. They’ll see all that information in one central place instead of hopping around to all of these different loan servicers.
Then, after you’ve aggregated all your data, let’s analyze the data. Let’s give you additional information on the student loan. If you log into some of these servicing sites, they don’t tell you the term of the loan. They don’t tell you if it’s federal or private. A lot of the this information is assumed. But the borrower, fresh out of school, has no idea what these debt obligations are or what they mean.
We also analyze the long-term financial ramifications. How much interest are the loans accruing daily, monthly? How much interest will it accrue by the time you pay it off? It kind of brings this financial debt to the front of your mind and make it tangible, you know… of what a 6.8% interest rate will mean over the next 10 years.
Afterwards, we provide a little bit more education and analysis on the student loans. The third step is giving recommendations for the various student loan modification programs. You have both private and federal options. Our system matches their loan types and their social economic situations across 70 different repayment options.
As a borrower, if you didn’t have something like Student Loan Hero, going through 70 different programs by yourself, trying to figure out which ones you’re eligible for is a pretty substantial process.
Rob: Sure. Let me break that down. When someone signs up for Student Loan Hero… First of all, I think creating an account is free. Am I correct? There’s no cost?
Rob: And then is it one of those deals where they input their log in information to the various servicers and then you guys automatically suck in all of their student loan data?
Andy: Exactly. So you’ll provide some very basic information. First name, last name. We do need your Social Security to get your federal loan information along with your FAFSA pin which is your federal pin that the Department of Education gives you, and that will go and grab all your student loan data. Then you can also add some private lenders like Sally Mae for example, or Wells Fargo. And that’s really your first step.
Rob: Are there some private loans where you just don’t have the relationship with the financial institute to bring that data into automatically.
Andy: We don’t have any relationships with any of these institutions. We get the borrower to agree to the terms and conditions, and they provide their information on their behalf. Then we reverse engineer the login process, and we’re able to obtain the information that way.
Rob: Okay. So you don’t need Wells Fargo’s permission? If I had a student loan with Wells Fargo, and I gave you my login information, you can take it from there? Wells Fargo doesn’t know if I’m logging in or if you’re logging in for me?
Andy: Exactly. And there’s a bunch of companies that do this such as Yodlee, for example. They powered mint.com for the first few years they were up and running.
Tackling Student Loan Repayment Options
Rob: Okay. And you mentioned repayment options. Again, I have a vague memory… When I graduated from school the Internet didn’t exist, so these options weren’t available to me. I know I’m really showing my age here, but can you give us sort of a high-level overview of the repayment options? You said there were 70, and I know we can’t go through all 70, but maybe a high-level overview of what those are?
Andy: Yes. Like I said, there are both federal and private options. On the federal side, there are some really great programs out right now if you’re looking to lower your monthly payments, which a lot of borrowers need to do. The federal default rate is around 14% right now, and a lot of these borrowers can avoid default by simply enrolling in one of these default modification programs.
The first one – and the most popular one – is Income Base Repayment. Typically, if you make under $60,000, you can apply to this program. It’s free. There’s no origination fees or closing costs. What this program does is peg your student loan payments to your income— about 15% of your monthly income. And that makes it really, really affordable for a lot of folks.
Along with Income Base Repayment, there are also a few other income-based repayment programs, such as Income Contingent Repayment, Pay-as-You-Earn. They are just similar variations of Income Base Repayment.
Another federal program that one in five Americans actually qualify for is Public Service Loan Forgiveness. Folks that are working in an non-profit environment, religious institution or active duty military can qualify Public Service Loan Forgiveness. And, depending on the institution, you’re required to work at least 5 or 10 years at the institution. Then, after that time period, if you’ve been making your loan payments for that time period, you get the rest written off. Keep in mind, you do need to pay taxes on whatever is to be ‘forgiven.’
Rob: That’s a good point. Just like the forgiveness of just about any debt. So with your tool, when folks connect all of their accounts you’ll crunch the data and show them what their repayment options are and what that would do their payment and then how long it will take to pay off?
Andy: Exactly. We’re building in more of the advanced calculators, such as what your monthly payments would be on Income Based Repayment. We haven’t integrated all that stuff yet, but something else we haven’t talked about here— and I noticed that you had SoFi on two weeks ago?
Partnering with Consolidation Companies
Andy: They’re a great partner to us and can help a lot of folks refinance their loans. There are a lot of people out there with 8% and up to 12% loans with Wells Fargo or Sally Mae, so folks like SoFi and Common Bond can come in and take that 8% loan down to about 3%. That can save people substantial amounts of money over the long term.
Rob: And you show them these options?
Andy: Yep, yeah, we show them those options. As well, we also have a student refinance calculator to see if it actually makes sense for you. Because a lot of times you’ll take something from a 10-year term out to a 15-year, and you’ll go from a 6.8 % to a 4.8%. That’s a very close calculation. It depends on what you’re trying to accomplish. Are you trying to lower your monthly payments or are you trying to save interest over the long-term as well?
Rob: I take it you guys have relationships with these various financial institutions and that’s how you’re able to offer this service for free to the consumer?
Andy: Yes. We give away the tool for free, and we collect advertising revenues from some of the lender partners we work with.
Subsidised vs. Unsubsidized Loans
Rob: It came up recently about whether subsidized loans have the same interest rates as unsubsidized loans, and I guess I just assumed subsidized loans were cheaper. I think this actually came up in the SoFi interview. But a reader emailed in and said he didn’t think that was right and that they are actually the same rate. What’s your experience between subsidized and unsubsidized loans?
Andy: Most recently we’ve been seeing subsidized loans around 3.4% and unsubsidized loans around 6.8%. Last year there was new legislation introduced that changed those rates again. I don’t know what they’re at currently. I believe they’re actually slated to change again this year.
So it’s a constantly changing environment – depending on interest rate conditions, depending on federal funding, Department of Education funding. The amount of subsidized loans and unsubsidized loans changes every year. And also the interest rate changes every year.
Deferring Student Loans
Rob: One thing we haven’t talked about is deferring your student loans. Is that option still available? And if so, how does it work?
Andy: Yeah, there’s a lot of fresh grads that just got out of school this past May, and they’re going to be— When you graduate from school you’re looking at a 6-month grace period. You have 6 months before you have to write that check to your student loan servicer. Just the nature of the situation, there’s going to be a lot of grads who aren’t going to be able to find employment, and they need to figure out what to do with their student loans.
For some, deferment for economic hardship forbearance might be the best option. What a deferment is, is it will just put your payments on pause. For federal loans, you can pause your payments for up to 3 years. On subsidized loans the actual interest that accrues during that time period is paid for by the government, so that’s a great feature. But keep in mind that with unsubsidized loans, the borrower is going to have to pay the interest that accrues during the deferred period.
Rob: And that’s a big difference.
Andy: But overall, if you look at it as a tool, it can be a great option for folks instead of going into default because if you default on your student loans, not only are you affecting your credit score and you won’t be able to refinance in the future, by, by… I lost my train of thought there.
Rob: You were talking about if you default on the loan—
Andy: Yeah, sorry. If you default on your student loan, you’re going to get tacked on about 18 1/2% collection fees.
Calculators from Student Loan Hero
Rob: Yeah, not good. We touched a little bit on calculators you guys offer. One of the questions I get a lot from folks… And it goes beyond student loans, but they’ve got any number of debts.
Maybe they have student loans, credit cards, car loans, and they’re trying to figure out, “How do I attack this? How do I pay this off? What do I pay off first if I have extra money?” Do you guys provide any of those sorts of analysis as it relates to at least the student loan portion of debt?
Andy: We actually have a really cool amortization calculator, so when you have 16 loans, or when you have 26 loans, and they’re all different interest rates, it’s tough to figure out what the amortization schedule is going to look like.
So, on this app we have a simple calculator. You just adjust your monthly payments. If you have an extra $100 or $200, it will apply it to each of those loans either based on the highest interest rates first, or the lowest principal amount based on the famous Dave Ramsey avalanche or snowball effect.
Rob: Oh, the old debate between the avalanche and the snowball.
Andy: Exactly. So we let users decide which strategy they want, and we provide some commentary on which loan they should be accelerating and what those new monthly payments will look like. On top of that, we also have a refinancing calculator to figure out if refinancing is a good option for you.
A lot of folks have been asking us if they should prepay their student loans or invest, which I think is a really interesting question, especially if you have a 401(k). It’s kind of a tricky question especially if you have 401(k) matching from your employer. But that’s a good calculator as well. We also have a student loan deferment interest calculator to figure out how much interest you will accrue during a deferment period.
Rob: That sounds good.
Andy: Yeah, a lot of great calculators.
Rob: I’m a big fan of, if your 401(k) matches, take advantage of it. That’s my view, but folks have to make decisions that are best for them. If folks want to check this out, obviously the place to go is studentloanhero.com, right?
Andy: Exactly. Just go to studentloanhero.com. You can create a free account. It takes less than 5 minutes to get your loans synced and start figuring out ways to save money.
Rob: I almost wish I had some student loans so I could log in and check it out. Actually, that’s not true. I don’t wish I had student loans. It took me 20 years to pay them off. But I do wish this tool had been available for me. It would have made things a lot easier.
So, let me just step back from Student Loan Hero for a second before I let you go. You mentioned that you’d started a number of companies. Student Loan Hero, would you view that as your most successful?
Starting Student Loan Hero
Andy: Yes, yes. I’m still learning and growing as an entrepreneur. I’m 27 years old, and I’ve had three cash-flow positive businesses— three profitable businesses, and one that was a complete failure back in college. It was just one of those terrible clothing idea companies that every college student has.
But yeah, I’m having a lot of fun building Student Loan Hero. I’m getting a lot of fulfillment and satisfaction in the personal finance base and really helping a lot of young adults figure out their finances.
Rob: Yeah, but you know the stories of the failures, I think, are so important because we always hear about the successes on podcasts, TV and radio, but you’ve sometimes got to experience the failures before you hit the successes. Why didn’t you give up after the failure? Did you think, “Ah, maybe I should just go get a job and forget about this whole trying to start a business thing?”
Andy: If I worked in a corporate environment, I think I’d get fired in the first week or two.
Rob: Fair enough. When you started Student Loan Hero, did you code this site? Were there two of you working on it? Twenty? How did it begin? Day one, what did you do?
Andy: Day one, we actually applied to a business incubator. We got accepted into a business incubator in Santiago, Chile. We moved down to Chile—
Rob: You’re all over the place!
Andy: Yeah. I’ve been fortunate enough to travel quite extensively. But Santiago, Chile was just phenomenal. There was an ecosystem of about 400 entrepreneurs down there. We got $40,000 equity free from the Chilean government.
It was really an economic development program. Not the typical venture capital model like here in the US. It was really focused on building the local talent pool and transferring knowledge of smart human capital from all over the world.
Rob: How did you learn about that opportunity?
Andy: I was living in San Diego and working at a co-working space, and I literally just ran into this guy who said he was applying to this incubator and suggested I check it out. And literally, the application was due that day. A month later we were on our way down to Chile, so it was very serendipitous.
Rob: How many of you were there when you started?
Andy: There were three of us. And we’re still a really small and agile team. Two of us are fulltime, and we work with about six contractors. We’re really focused on staying lean and agile. We haven’t had to go out and raise money. We’re completely boot-strapped beside a small seed investment. And we’re really proud of that.
I think in the startup ecosystem, a lot of companies are over-raising, and it makes things a lot tougher to perform in the long run. So I think we’re doing it right. We’re growing organically and we keep seeing month-over-month growth, so we’re really happy right now.
Rob: That’s fantastic, fantastic! Where are you located now?
Andy: I’m in Manhattan. My business partner is still in Santiago, Chile. Our other business partner departed the company, but yeah, we’re completely remote and virtual. I’m actually sitting at home right now, so it’s a good lifestyle. It’s very, very mobile.
Rob: Is your company 100% Student Loan Hero, because you mentioned web development. Do you do other things besides Student Loan Hero?
Andy: I do some design consulting on the side. I do ‘user experience’ design, ‘user interface’ design. And you asked earlier how we went about building the tool…
Building a software development company four years ago gave me all that rich experience in developing interfaces an developing user experiences, and paired with my economic background from college, it just gives me an interesting vision for building out a product that not only is user-friendly but serves a business purpose as well.
Rob: Do you do any of the coding yourself?
Andy: The front-end stuff I’ll do. I make websites look pretty. I don’t make them work. I make them look pretty, so my cofounder does all of the backend development.
Rob: Well, pretty is important. Design is critical.
Andy: It is. Exactly.
Rob: Alright Andy. I appreciate your time. Is there anything I haven’t asked you, that I should have asked you? Or is there anything else that folks should know about Student Loan Hero?
Andy: No, that’s about it Rob. I really appreciate you taking the time and having me on the show.
Rob: Well, thank you and good luck to you, your business partner and your company.
Andy: Thanks so much.