Summer: Why We’re Backing Summer

COVID-19 has cast America’s financial health challenges in sharp relief. Even before the downturn, nearly 70% of Americans were struggling financially. As the pandemic intensifies, the crisis has underscored U.S. families’ daunting financial vulnerabilities. From weak workplace safeguards to constrained savings and insurance gaps, the fallout is prompting a long-overdue examination of the status quo.

Nowhere is scrutiny more critical than in the realm of student debt, where the headline statistics have been blinking red for years. Over 45 million borrowers hold $1.6 trillion in outstanding student debt today, more than triple 2006 levels. Student loans are now the single largest source of non-mortgage household debt in the U.S., outpacing growth in both credit cards and auto loans.

At Flourish, we have tracked market innovations in student debt closely, given our focus on technology-led financial health solutions. While first-generation startups like SoFi have narrowly targeted high-income degree holders (MBAs, JDs and MDs), we believe the greater commercial and impact opportunity lies in expanding solutions to a broader, mass-market consumer base.

In that context, we are proud to announce our recent investment in Summer, a mission-driven, certified B corporation that specializes in enrolling student borrowers in best-fit federal and state loan assistance programs, among other savings opportunities, to minimize their debt loads. Flourish’s investment builds on Summer’s strong momentum fueled by its recent $10M Series A fundraise led by QED Investors.

Founded in 2016, Summer’s accomplished founding team combines a deep understanding of the policy landscape with market-leading technology and customer centricity. The company’s ability to generate material savings for diverse borrowers — from doctors and nurses to teachers and front-line COVID-19 relief workers — represents a powerful value proposition for both end users and Summer’s channel partners, including associations like American Federation of Teachers and myriad employers. Summer’s solutions are also particularly relevant and timely as crucial tools to help alleviate financial stress in response to the current economic crisis.

Student Debt & COVID-19: The Need for Flexible Repayment Plans

Many student borrowers had difficulty repaying their loans even before the COVID-19 crisis hit: ~1.2 million Americans defaulted on a student loan in 2019 alone, joining 8 million borrowers already in default (representing approximately 1 in 5 borrowers). Defaults have been particularly pronounced amongst communities of color. Unprecedented job losses will further exacerbate the problem, as total unemployment filings reached a record high of 26 million in late-April 2020.

In response to the crisis, the U.S. federal government has taken the important step of pausing repayments on all Federal Direct loans. However, Direct loan borrowers may be at heightened risk of default when the payment freeze is lifted in 6 months, and millions of borrowers with private student loans, as well as commercially held-FFEL and Perkins loans, are not able to benefit from this federal relief.

There is far more that can be done to support student borrowers, both to weather the near-term crisis as well as to improve debt management post recovery. [click to tweet]

One immediate and high-impact source of relief is to help borrowers enroll in more flexible repayment plans. The federal government has long offered alternatives to the 10-Year Standard Plan repayment plan (fixed monthly payment installment loans), many of which could be particularly beneficial for unemployed and lower-income borrowers.

All borrowers with federal student loans, for example, are eligible to enroll in a federal income-driven repayment (IDR) plan. These programs set borrowers’ monthly payment obligations at 10% to 20% of their discretionary income, including a monthly payment as low as $0 for borrowers who are unemployed or have very low wages. IDR plans also offer loan forgiveness after 20 to 25 years, providing a long-term solution for those struggling to cover payments. In addition, many borrowers may be eligible for federal and state loan forgiveness programs that could further reduce total outstanding debt obligations, such as Public Service Loan Forgiveness and New York State’s Get On Your Feet Program.

While enrollment in these alternative repayment programs has grown materially over the past decade, these benefits remain significantly underutilized, particularly in the context of a potentially prolonged recession. Lack of awareness about available options, coupled with confusing and time-intensive application and re-certification processes, have served as barriers to greater borrower uptake. These challenges have created a clear need for technology-enabled solutions to help borrowers better navigate the complex student loan repayment landscape, especially during periods of acute financial hardship.

Summer’s Solution

Summer helps student loan borrowers with personalized repayment recommendations and loan program enrollment support. Summer identifies unique savings opportunities for each borrower, based on a robust recommendation engine that encompasses nearly all federal and state-level student repayment options. These recommendations — including helping borrowers to consolidate their federal loans, enroll in IDR plans, and/or apply for loan forgiveness programs — can save borrowers an average of $320 per month, unlocking nearly $4,000 per year. To date, Summer has saved its users more than $20 million.

Importantly, Summer’s digital platform also helps student borrowers convert repayment recommendations into action, by guiding borrowers through IDR and other repayment application processes from start to finish, working with the borrower and loan servicer to ensure the application filing process is managed correctly and in the borrower’s best interest. In the current crisis, Summer’s automated digital tools are uniquely positioned to help borrowers in three ways:

1. Enroll those that have lost or had income reduced in a more affordable repayment plan that reduces their monthly payment as low as $0 for the upcoming year;
2. Change the status of older FFEL loans to meet the federal government’s criteria for the 6-month payment freeze, and;
3. Assist private student loan borrowers with submitting financial hardship requests to their lenders to explore opportunities to defer their payments until a stable source of income returns.

Summer has partnered with hundreds of employers, associations, and institutions to provide these financial wellness tools and resources, all of whom are seeking smart, high-ROI opportunities to help their stakeholders better manage their student debt. The company is also well suited to collaborate with state and local governments on creative ways to support borrowers struggling financially due to COVID-19.

At Flourish, we are honored to support Summer’s work to help families ameliorate the financial burden of student debt. Summer’s innovative and holistic solution is deeply aligned with our focus on leveraging technology to help low-and-moderate income consumers achieve and sustain financial health.