The latest consumer debt data from The Federal Reserve shows the amount of outstanding student loan debt in the United States is approaching $1.6 trillion with an average balance of $35,359.
And presidential candidates like Pete Buttigieg (D-Ind.) have unveiled plans they say will help future students avoid the student loan debt burden altogether. Buttigieg announced a plan that would provide free public college tuition to families with a total income of up to $100,000. He promises tuition subsidies for families that have a total income up to $150,000 if he’s elected president.
But plans like Buttigieg’s could threaten businesses like CommonBond, David Klein, CEO and co-founder of CommonBond, a private lender that helps students finance their college tuition and refinance their outstanding student loan debt (private or federally-backed) told Yahoo Finance’s On the Move when he was asked about the plan.
Klein said the Democratic party candidates are proposing two kinds of college plans. One is what Klein calls “the free ride” in which everyone gets a free college education. The other according to Klein is what he calls a fair ride. “The fair ride camp essentially says, you know, free college for some. Wipe out debt for some.”
Klein suspects a free ride “would create a lot more problems than I think it’s trying to solve.” But he acknowledges a lot of people in the U.S. suffer from student debt in ways that they shouldn’t, “and we should help those people.”
Klein started CommonBond “because, in order to go back to school, grad school in my case, I needed to pay my way 100% with student loans.” Klein, who is one of the 43 million Americans who are still paying off their student loans, says CommonBond has helped ease the burden and funded more than $2.5 billion in student loans. “I refinanced with CommonBond so I saved a lot of money,” he said.
How it works
The CommonBond web page guides loan applicants through the application process promising lower rates than an applicant would get on their own at traditional banks. It also shows potential savings over a borrower’s current payment plan.
CommonBond says the benefits for borrowers include consolidating several loans into one with a single payment. Borrowers also have the option to pause payments for up to 24 months in case they suffer a financial hardship like losing a job.
“This is the first financial product that so many people in the country have ever really had to deal with.” Klein said. “A lot people are calling it the new mortgage. And so it’s a way to get in front of, win the attention of a relatively young consumer at the beginning of their customer lifecycle to provide a broader financial relationship over time.”
Adam Shapiro is co-anchor of Yahoo Finance On the Move.