Pillar: Fintech to Solve Student Debt Problem

• 23 February 2020 | 1298 Views | By Abhinav Mishra

To help students in repaying their student loan debt, a new startup named Pillar emerged. To simply say, the app connects to your loan servicer and the bank and makes personalized suggestions based on your income, the way you spend money and the loan so that you understand how long it would take to cut out the loan. The tool also alerts you when you are able to pay any extra amount. Now you may get a doubt whether pillar stores or sells your data? It does not sell your data and secures your data just as a bank secures it.

Recently, this startup received $5.5 million seed money from the venture capital company, Kleiner Perkins which provides a solid base for working. Let us now explore in-depth about the Origins and the features of Pillar. Lets us first start with the problem it aims to solve.

The Problem of Student Debts

The Problem of Student Loan debt is so massive that it is the second-largest consumer debt in the United States. It is estimated that the average debt after graduation of a person would be $30,000 which would take 20 years to pay. The long repayment schedule along with large deductions within payment make it such a huge crisis.

In general, Seven out of ten students take loans for their college and this scales up to approximately 45 million borrowers of student loans nationwide who owe more than $1.5 trillion dollars. This is more than total accumulated debt of car loans and even credit card debt. Of the 45 million borrowers, 20% have more than $1000000 debt. And women, who hold the two-thirds of this loan, are more affected than men due to these loans because of the existence of gender pay gap which only increases the longevity of paying back the loans.

In income based repayment, generally, monthly payment plans take 10 to 15 % of the discretionary income (which is the amount earned over 150% of poverty level) of the borrower for loan payment and for some, it might be even 20%. The payment calculation is same for everyone and do not consider the cost of living and also other costs of the borrower. 

Once into the program, it can also be necessary to stay there and jumping out from it would mean going to a higher payment than faced before enrolling. The complexities in the student loan programs often confuse who is collecting the debt, which enables the independent collectors to misrepresent themselves as government and also, these collectors often misrepresent borrowers’ rights and borrowers are not able to utilize all of their rights.

The Motivation to Build Pillar    

Pillar’s co-founder and CEO, Bloch said that he was inspired to build Pillar when they struggled with his wife’s student loans who graduated from law school with about $300,000 of loans. 

He said that they read blogs and articles about this and they made a lot of spreadsheets and even Consulted financial advisors but to no avail. There was no easy way for them to understand what is the right way of doing this and what direction to follow. 

The tools available for understanding and monitoring loans are sometimes insufficient and hard to understand. The repayment calculator of the Department of Defence is also criticized because it assumes the average growth of income of an individual is 5% which is double the historical average.

At this point, he realized that there are 45 million people with these loans and many millions of them would have the same experiences of his and decided that he needs to do something. Thus the idea of developing something like Pillar started to help people who are in need of money.

Developing Pillar

Finally, Michael Bloch, who is now CEO of the company decided to drop out of the Stanford Business School and founded Pillar with co-founder and CTO Gilad Kahala which grew to a team of 10. 

The very first thing they need to do is to provide an easy way of understanding of the loans. Pillar organizes all the information at one place in an understandable way so that you need not indulge yourself in spreadsheets or any other ways. They found that there are small actions that people take which doesn’t necessarily mean hundred dollars a month but say a $5 a week extra payment that can make a significant difference and thus the app will alert you whenever you can make extra spending.

Pillar had been running a beta version of it using which people could manage the collective amount more than $50 million in the loan. The total number of users is undisclosed, but Pillar’s founder Bloch claimed that the average borrower saved around $6,000 dollars and four years on repayment.

Features of Pillar  

Pillar is available on both IOS and Android. At the start, users need to authenticate with the loan provider and the bank account. They use 256-bit encryption just as a bank uses so that your data is best secured. 

The Company works with mostly all major student loan services including Nelnet, Navient, Gret Lakes, Fedloan Servicing and others.

Pillar provides an easy way of understanding your student debt which may also result in clearing the debt early than what would take on average. Whenever the app finds a way to clear the loan quickly, it will send an alert to your phone.

Pillar is able to do this as it analyzes your spending and pay schedule, thus can figure out when you can start to make an extra payment. It also allows you to make these additional payments through Pillar itself instead of going through the loan provider’s website.

Pillar also calculates what that extra payment builds up for clearing your loan earlier which becomes especially useful for those whose income fluctuates for any reason. 

It is also important to note that Pillar neither offers to refinance loans nor will point towards them and in fact, it expects you not to look at them. Also, Most people will not qualify for lower rates on refinancing as they are too high for credit risks. To give it, they look at your credit scores, income, type of job, etc which makes companies like SoFi turn away approximately 97% of people.

Pillar Targets the people who make less than $100000 per year and have fewer options which can help them a lot.

Future of Pillar

At this point, Pillar does not help borrowers for navigating student loan forgiveness programs. But they are planning to implement it using tools and automation. Now is a group of 10, they are planning to hire employees particularly engineers.

But one must admit that this is not a complete comprehensive solution because sometimes, interest rates on consumers’ student loans might be lower compared to the high-interest rates on their credit cards or other debt. They also should be managed correctly and paid. For people who qualify for income-based repayment or other lower payment options or other forgiveness programs, it might not be a good option. So  In Long Term, Pillar also plans to help to clear the loans for all of the consumer debt which is a great goal!

Pillar is free to use for now — but they say that they might be charging a low subscription for premium features from some point within the future. But they will notify it well ahead. They also provide the anonymized loan data to research and non-profit institutes who work to advance policy around student loans.

Any third party software which connects customers and companies takes a commission for their works and that’s how they make money. When we observe Pillar, they are not charging anything but analyzing our spendings and alerts to pay loans instead of spending on other stuff. It takes money for research and development, salaries of employees and many other things involved in maintaining the company. It is okay even if Pillar charges few bucks as a subscription because the features should not be comprised of giving away the app for free. 

Conclusion:

Many of us find it difficult to repay loans and other debts as we live paycheck to paycheck (most of the people). There will be costs that may be minimal but if you can cut them down, debts and loans can be cleared earlier. The concept of Pillar amazes us and truly showcases how can technology be used for solving problems. Both parties win as people can complete loans faster before the ending date which saves money and Pillar also is benefited as their mission was to help people. One thing that Pillar should focus is on security. 

Lots of people’s data are analyzed in order to serve them better. Businesses run on trust too and if the data gets compromised, it’s a huge problem but i think it will never happen as they use most secured systems to protect data. Overall, Pillar is a great concept and there’s a saying that suits this app which is “Necessity is the mother of invention”.