Nearly 44 million Americans owe a collective $1.5 trillion in student loan debt. It's also estimated that 10% of borrowers are in default on their student loans and research shows another 40% will go into default by 2023.
While it may not have all the answers to this crisis, Ann Arbor startup Nickels may have a solution to prevent borrowers from going into default.
Nickels is a web application focused on loan counseling for young adults with student loan debt. The app syncs with a user's federal student aid account and makes personal recommendations based on the account's status.
The best part for users? It's free and always will be for borrower users, according to Nickels founder Joseph Garcia. Garcia says the government has policies in place to prevent student loan defaults, but there are behavioral pitfalls that trap borrowers into financial situations that don't work for them.
"The way that the (federal student loan) system is set up, everyone can stay in good standing regardless of amount because of protections and policies in place," Garcia says. "On paper, you would predict a 0% default rate."
Some of these student loan-related pitfalls include choosing the 10-year payment plan pre-selected by the government as the default choice. Garcia says 120 payments look differently depending on the amount of loans a student has, and the plan may not fit the student's financial situation once they start to make payments.
The Nickels app can help users with a situation like this by evaluating borrowers' loan information and income to recommend another payment plan timeline that works within a user's budget.
Nickels plans to roll out with three state colleges across the U.S. to be available for enrolled students. In addition to education partners, the startup will launch with support from investors and grants.
Nickels was recently awarded the $25,000 Best of Boot Camp prize from Ann Arbor SPARK's Entrepreneur Boot Camp.
"A $25,000 prize gives us a lot of opportunity," Garcia says. "We've been working with a few local software developer contractors to get the site built and we just made our first full-time hire."
Garcia says he hopes Nickels will help young adults with student loan debt and make a positive impact on the growing student debt crisis.
"We see that a lot of people's introduction into the world of finance is through student loans," Garcia says. "It's an opportunity to help borrowers with student debt and help with other questions as we think beyond student loans."
Emily Benda is a freelance writer based in Ann Arbor. You can contact her at firstname.lastname@example.org.
Photos courtesy of Nickels.