Crossing the commencement stage is supposed to be a celebratory moment for college grads. And it was, until word broke this week that the average student loan debt for borrowers clutching a newly-granted degree has hit record-breaking heights: $30,000.
Derek Kaknes, founder and CEO of Prime Student Loan, acknowledges “the system is broken.” Since June 2012, he has made it his mission to help refinance loans at lower interest rates, all at no cost to recent grads. And he must be onto something, because the company announced Wednesday it raised $250,000 of seed funding from CommonAngels.
A 2012 MassChallenge alum, Prime Student Loan zeroes in on the credit cycle. In Kaknes’ eyes, there is no reason a recent grad should have the same interest rate as a student in college, considering their credit has likely changed or improved.
Sallie Mae, the largest student loan institution, doesn’t offer a refinancing product. And although other options are available, they are more difficult to find, which is what Prime Student Loan is striving to solve.
“There is an inefficiency in the market,” Kaknes says, “and it seems like it could be corrected simply with this third party. We’re instigating people to seek lower rates.”
Upon signing up to the platform, borrowers are able to aggregate all of their loan data into one place. Prime Student Loan then uses its proprietary analysis, based on information such as education, employment background and outstanding loan data, to determine whether or not users are paying their loans back as efficiently as possible.
To date, the service has seen an average savings of roughly 30 percent on monthly payments and a 50 percent reduction in interest rates—all free for recent grads. Prime Student Loan earns revenue through referral fees from banks.
“Our goal is simply to rationalize this market,” Kaknes claims, describing it as one “predicated on the idea the consumer is not going to act in their own best interest.”
“The reality is, the majority of people with loans are paying too much for them,” Kaknes says. “There are so many opportunities to lower your cost of debt across the board, but [recent grads] don’t have the collective bargaining power to push back against it.”
Moving forward, Prime Student Loan will be looking to partner with employers and integrate themselves into their onboarding process as a means of educating recent grads. Right now, Kaknes says they are focused on targeting larger employers in the Boston area.
“If we’re successful,” Kaknes says, “we’d like to expand this as broadly as we can.”
With the average student loan debt on the unforeseeable rise, the broader the better for all recent grads.
Image via GoLocalWorcester