Episode 117: Debunking Student Debt with Will Sealy, Founder & CEO of Summer
Will Sealy is the Founder and CEO of Summer, which helps student loan borrowers navigate the complex repayment process and maximize their loan savings through AI-driven software. Prior to Summer, Will worked at SoFi on business strategy and operations, and, was formerly a student loan policy expert at the Consumer Financial Protection Bureau. In 2009 and 2010, Will worked at The White House on implementing the Dodd-Frank Act. He holds an MBA from Yale University and a BA from the College of William & Mary.
What should the Supreme Court decision mean to borrowers and why we should care?
Student loans have existed and are offered by the Federal Government to high school and college students preparing for college education for several decades, and over that time, no one anticipated this program growing to the size that it is currently today. There are approximately 46 million borrowers on the hook for $1.8 trillion dollars in total outstanding student loan debt. The reality is that about 90% is owed to the federal government as the biggest student lender in the country and the remainder is the private student loans owed to banks and other financial institutions among the 43 million out of the 46 that have federal student loans. Those borrowers have been told by President Biden both during his campaign, a promise made to cancel a portion of outstanding student debt, and also his more recent statement announcement to do so in the form of $10,000 and $20,000 of debt cancellation depending on whether or not you have a pell grant. What this means for the average person is that it will be life-changing. If you do have student debt, the debt can be on average $40,00 to $45,000 per borrower. That is approximately $500 a month and when President Biden announced this, that is a significant portion for millions of people, and a good portion of those borrowers have under $20,000 of student debt left remaining and that would entirely wipe out their debt altogether. This announcement came out last year and has worked its’ way through the courts which inevitably is leaving a lot of people questioning if it will happen or not.
Where is the gap with existing financial aid instruments, and where do the private loan vendors fall?
The first thing that is done when talking about taking a student loan is applying for college. As you apply, one of the parts of the process is called the FASFA application. This application is administered by the Federal Government, and it is evaluating how much student loans you could borrow from the Federal Government in order to cover the cost of tuition. As you get into a program or multiple programs, you will be approved for borrowing Federal student loans that are based on you being eligible to do so as well as the university being eligible to receive. Most colleges and universities in the United States are called for authorization so they can qualify to receive Federal student loans on the other end. Once you get that, you may also get a financial aid package from your college or university that is, in addition to the federal student loans, they would subtract that off the total price. They may also offer additional merit or grant-based aid to the individual. This will also make the total price lower but then the student and family still have to look up how to cover the remainder. They can then turn to a private student loan to make up the difference. If the family does not feel like they have the ability to do so themselves. That process has very complicated and confusing. At Summer, they help families navigate that process step by step, looking at which scholarships and grants the individual student may be eligible for to help them apply and find those programs to help reduce costs. Grants do not have to be laid back but loans do and that is a key differentiator that every family has to know as they go through that process of what is owed back versus what is given without the expectation to be repaid. The private student loan industry does factor in a person in a family’s financial ability to repay. They usually use a credit score in order to analyze that and usually, because most high school and soon-to-be college-age students do not have a credit score, they rely heavily on their parents or dependence on credit scores and require them to be a cosigner which means they are on the hook for repaying that loan with that individual whereas a Federal student loan is not based on an individual’s credit score. You can get a Federal loan regardless of having a high or low or even no credit score. We tend to find that private student loan interest rates are higher than the Federal student loan interest rates as a result because they are basing it on risk-based loan assessments in order to deem the creditworthiness of that individual. What is recommended is to maximize the grants and scholarships that you are eligible for as a student to further reduce the price tag of the college or university before looking for a student loan. If you need to cover the remainder then it is also recommended to maximize the Federal student loans before turning to private student loans. Private student loans are again a minority, less than 10% of all outstanding student debt but those who have those loans tend to find a very high interest rate and have few flexible repayment options.
What is the reason why Will Sealy take on the challenge of student loan debt?
Student debt impacts so many people and when Will graduated it was after the homeownership and mortgage crisis and he saw many people struggling to figure out how to navigate the payments. He was able to work in the Federal Government and got to work at the White House and the Treasury Department on that solution. There was the 3-legged stool of support so they were able to provide more enforcement and supervision. They found mortgage lenders that were predatory and nature and not disclosing a lot of tricks and traps in the terms of service which included balloon-rate mortgages where you have a teaser rate that is low and gets you to take on the mortgage at a lower percent. After ward unbeknownst to you but in the disclosure form where it will have the mortgage jump to a higher percentage after a couple of years. A lot of people could not repay were balloon rate mortgages. This is one of many problems that were identified in 2008 and 2009 as part of that the mortgage crisis. He then saw that in this industry this needs to be regulated more effectively so that people don’t have to struggle. When it comes to the higher education industry, one of the goals is to make sure that institutions are not tricking people into doing things that are not in their best financial interests. The last part of the stool was financial education and literacy. The idea was to educate the individual consumer, to be able to identify and be aware that this could even happen to them, and to be on the lookout. You also had to regulate the industry to make sure that these predatory players weren't out there flooding the market with these predatory products. While Will was working in the government, he was seeing the market very carefully and realized that there are a lot of similarities with the student loan space. The question was while they were solving the mortgage crisis and was asked what could the next big crisis that could impact consumers. In 2010, and 2011, Will spoke and said student debt is a huge concern. At the time, student debt was being reported as being like a $8 billion market. With him and his colleague, they realized that the reporting of student loans has been wrong for several decades. All of the total student debt numbers that were being reported were just Federal student loans. It was ignoring private student loans and when you combined the two markets into one larger student loan market student debt had already surpassed one trillion dollars in total outstanding debt. When it was reported that was a huge wake-up call for everyone and having them realize that student debt was more of a problem than anyone had anticipated just because of its sheer size. He was interested in this because if another problem like this happened and it could have been stopped, that was a major motivator for Will to get involved in the student loan space. He was dealing with student debt still and in addition to having his mother deal with her student debt for many years which added to his motivation. The thought came into his mind” If it’s hard for her, and she is the prior generation, my generation is going to have it much harder because this is more debt for us".
Contact Will Sealy
LinkedIn: https://www.linkedin.com/in/sealywill/
Learn more about Summer
Website: https://www.meetsummer.com/
LinkedIn: https://www.linkedin.com/company/savewithsummer/
Twitter: https://twitter.com/SavewithSummer
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