While credit has increased Americans’ purchasing power — helping them buy homes, cars and other goods — it’s also normalized debt across the U.S. As of September 2021, U.S. consumer debt has reached $14.96 trillion, with the average American owing $92,727.
Included in many of these consumer debt balances is student debt. Next February, nearly 43 million Americans will need to start paying back their student loans, after the pandemic-inspired forbearance period has ended. This will create a student debt tsunami that our economy and financial markets have never before witnessed.
Students now owe more than $1.7 trillion dollars, the most in history, with the average balance reaching $38,792 in the U.S. The current default rate of around 9 percent could rise to nearly 40 percent by 2023, according to The Brookings Institute. The anxiety and stress of debt repayment can cripple consumers’ financial and personal lives. In addition to these challenges for borrowers, financial institutions will be under enormous pressure to empower and enable these borrowers to solve their debt issues quickly.
It’s a crisis waiting to happen, but one that Payitoff is well positioned to help mitigate. Payitoff is building API infrastructure and tools to automate every aspect of debt management for fintechs, workplace providers, and financial institutions. It’s an ideal solution coming at exactly the right time. That’s why we’re pleased to announce that Lightspeed is leading the $8.5M seed round in Payitoff.
Today, lenders and financial institutions lack the tools to properly help borrowers navigate their own debt. Antiquated back-end systems and middleware are the connective tissue that stitches lenders and servicers systems together. Consumers have no idea what their full debt picture looks like and making payments is rife with challenges and errors. Payitoff is building intelligent repayment pipes to make it easier for all the financial counterparties to integrate with each other and to empower lenders to help their borrowers.
The most common approach to the current student loan crisis is to help borrowers save more money so they can pay down their loans faster. But in practical terms this approach only helps on the margins. If you owe $30K in loans but you only make $50K a year, saving $50 a month won’t move the needle, but with Payitoff’s infrastructure, partners using their API and low code tools can save their borrowers $240 per month on average.
While there are hundreds of federal and state programs designed to ease the burden on borrowers, they’re confusing and difficult to navigate. Payitoff automates the process of applying for these programs by analyzing each borrower’s profile and determining which ones they might be eligible for. Then, instead of spending weeks going over reams of paperwork, borrowers can apply with just a few clicks. 22 million borrowers financially benefit from these programs and need easier access to debt forgiveness and repayment programs. Payitoff makes it happen.
CEO and founder Bobby Matson has experienced the student debt crisis first hand, and is on a mission to ensure that no one else has to endure the burden of years of crushing debt. He’s spent years building major technology systems for companies like Fandango, Stitch Fix, Prosper, and Groupon. His executive team — Desmond Bowe, Steph Reiley — bring extensive experience with Fiserv, Charles Schwab, and fintech companies, like Simple Bank, to the table.
I’ve gotten to know Bobby over the last two and a half years. His commitment and unique understanding of these challenges has him well positioned to build a leading Fintech company focused on debt infrastructure.
One of the things that makes Payitoff’s story so compelling is that it aligns incentives for all parties involved. Borrowers don’t want student loans hanging over their heads for decades or to go into default. Servicers want more borrowers in repayment without driving additional costs. Lenders don’t want their customers saddled with debt they can’t pay. Financial institutions want to improve borrowers’ financial lives to enable them to achieve other financial goals, like buying their first home or purchasing a car. Making it easier to manage student debt can help build customer loyalty that pays off handsomely in years to come.
But building smart infrastructure for the student loan industry is just a first step for Payitoff. The same technology can be applied to other services that pit financial institutions on one side and consumers on the other. Ultimately, it’s about connecting the different pipes in an intelligent way that legacy systems can’t begin to compete with.
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