ReadyForZero launches student loan acceleration, targets $1 trillion bubble

By Michael Carney , written on January 11, 2013

From The News Desk

Throw a stone in this country and you’re likely to hit someone in significant debt. Increasingly, that person is likely to have student loan debt. It’s a massive and growing problem. According to the Federal Reserve Bank of New York, the student loan bubble has grown to $1 trillion across 37 million borrowers (affecting one in five US households), and 11 percent of these loans are considered to be at risk of default.

As we learned during the recent mortgage crisis, a “bad debt” bubble as large as this one affects more than just those on the hook as borrowers. Ripples extend throughout the national and international economies. As Brian Goldberg bluntly stated earlier this week when looking at the state of the world, “Young People are [really, really] Screwed.

ReadyForZero is an online personal debt management startup that is looking to make a dent in this problem. While the Y-Combinator alumni company offers solutions for holders of credit card, mortgage, automotive, and education debt, it’s the latter category that not surprisingly has grown the most rapidly since its launch two years ago. The platform now has more than $110 million in student loan debt under management (out of nearly $500 million in total debt under management), a figure that’s growing 20 percent month over month. Accordingly, the company is releasing new products and featured aimed specifically at this market.

Today, the San Francisco-based company announced a student loan acceleration option, piggybacking on its recently released premium online payment functionality. The technology is similar to that historically applied to mortgage loans, which like student loans are categorized as long-term, non-revolving debt.

Loan acceleration works by creating and automating a bi-weekly payment plan for every borrower. If a borrower’s current monthly payment is $500, then that borrower would instead pay $250, twice per month. Despite the simplicity, this increased payment frequency results in significant interest savings over the life of a loan.

Mortgage borrowers regularly pay $500 to $2,000 per year for “loan acceleration software.” ReadyForZero’s equivalent is available for a onetime setup fee of $50, and a recurring monthly subscription of $4.99 – unlike most other programs, ReadyForZero customers can start and stop at any time.

The reasons to pay for the software, rather than just make manual bi-weekly payments are twofold. First the powerful set-it-and-forget-it automation is not to be underestimated. Second, the same subscription fee gets users access to the rest of ReadyForZero’s impressive platform, which is available on both Web and via an iOS mobile app.

The online platform serves to organize and manage all of a user’s debt within a single interface. Users can create a personalized repayment plan, make one-time and recurring payments, and track financial progress. The system even monitors a user’s transactions, payment history, bank deposits, and other financial behaviors and makes personalized real-time financial recommendations.

For example, when a $2,000 payroll deposit is made to the user’s bank account, the system might alert them that an extra payment of $100 against their high-interest credit card debt would allow them to pay off the debt two months sooner and save them $150 over the life of the debt. Prior to the launch of its loan acceleration tool, ReadyForZero has already helped thousands of customers pay down over $30 million in debt since its debut in 2011.

The ten person startup has raised $4.78 million across two rounds of financing from investors including Polaris Venture Partners, Citi Ventures, Steve Chen, Benjamin Ling, Nils Johnson, Maneesh Arora, 500 Startups, and Y-Combinator.

Given the size of the opportunity, ReadyForZero is predictably not the only startup targeting the student debt management and repayment market. Los Angeles based launched publicly earlier in January to offer a similar education debt management product. is still free, although loan acceleration is not yet part of their offering. Many compare these two startups to the granddaddy of the space, Mint, which has built a multi-hundred million dollar business focused on helping people manage their day-to-day spending.

The consumer debt crisis is an enormous problem that demands new and innovative tools. Founders Rod Ebrahimi and Ignacio Thayer have created an impressive early product. Given the value they're offering, expect that those customers who have taken control of their debt repayment for the first time in their lives will be the company’s biggest advocates going forward.