Editor’s Note: This is the second part of a two-part series on entrepreneurship and student debt. Part 1 looks at the burden of student debt on would-be entrepreneurs.
As a student at Harvard University during the Great Recession, Kelly Peeler studied 300 years’ worth of financial crises. She wrote a senior paper on financier J.P. Morgan and the Panic of 1907. Her hobby, if you will, is economic disaster. And when it comes to meltdowns, she sees one looming.
“The next financial crisis is rooted in the student loan market,” she says, with marked confidence. “I see similar leading indicators around the dynamics of student loans that parallel back to the mortgage crisis or financial crises throughout history.”
Peeler, who describes herself as “obsessed” with the topic, notes that the average student graduates with $37,000 in debt. “Students are actually signing up for loans that they don’t understand,” she says. “An 18-year-old making the biggest financial decision of your life, without the information necessary, seems pretty predatory to me.”
Enter Peeler’s financial tech startup, NextGenVest, which she co-founded in 2014. Its mission is relatively simple: Educate Generation Z — that’s young people born after Millennials, in the late 1990s or early 2000s — on the perils of student loans, before they become saddled by a crushing amount of debt. And do it in the way they understand, which, to this Snapchat generation, means via text messaging.
[Related: Series Part 1: Student Debt, a Burden for Female Entrepreneurs]
A Financial Education Via Text Message
Peeler and her co-founder, William Falcon, who raised seed money from angel investors, have created a technology platform to help thousands of students across the U.S. navigate the financial aid, scholarship and student-loan process. Falcon, a software engineer, specializes in artificial intelligence and developed the sophisticated software.
On the surface, the NextGenVest platform looks a lot like ordinary text messaging: A young person confused about the financial aid process can send a message to one of the company’s “Money Mentors,” or trained college students who have been through the process themselves. “They can get one-on-one advice from someone who’s kind of like their cool older brother or sister,” Peeler says.
Behind the scenes, the software combines tools and analytics to predict where the conversation is going and automate elements of it. That allows each Money Mentor — the company has about 200 of them — to advise hundreds of students at once, 24/7. “We actually use really sophisticated machine learning … to ‘supercharge’ our human conversations with students,” Peeler says.
Help Navigating Financial Aid, Student Loans
NextGenVest, which is now actively used in New York, Chicago, Los Angeles and other cities, claims to have helped more than 50,000 students receive some $40 million in aid — often, just by helping them fill out forms correctly. Some students don’t realize they can apply for free federal grants; others need help filling out loan applications. The company also works to prevent students from accumulating too much debt, a stressful situation that can cause many to drop out of school or restrict their choices after graduation.
In some cases, a student will take a photo of his or her financial aid award letter and send it via text message to the Money Mentor. The technology will “translate” it, spelling out exactly how much has been awarded. Excited students who think they’ve received mountains of aid often need to be educated. “Our technology will read it and will be able to say, ‘Wait a second, no, you weren’t awarded $19,000. You actually owe $19,000,'” Peeler says. It’s not because “the student is stupid,” she adds. “It’s because the letters are incredibly confusing and misleading and not standardized.”
Peeler says the business model, still in its early stages, will ultimately be similar to that of Credit Karma, which offers free credit tools but makes money through financial product recommendations. With NextGenVest, Peeler hopes to gain the trust of Gen Z users, helping them first tackle the complicated issue of student loans, then eventually assisting them open bank accounts, apply for credit cards or make other financial moves. NextGenVest would recommend products and receive a referral fee from the bank or lender, Peeler says.
If she’s successful, Peeler hopes she’ll be able to stop the next meltdown in its tracks. While regulations and safeguards have been put in place since the Great Recession, “I do not think that we are exempt from future financial crises, and that was really the motivation of starting NextGenVest,” she says.
Like the famous financier she once studied, “we’re really thinking about what does it look like, to build the next 100-year-old brand for the next financial institution.”
Kelly I believe that the next financial crisis is rooted in the student loan market. A lot of families right now don't really do the calculation of, “Does this make actual economic sense as a consumer, to spend $200,000 on a four-year college education, without the guarantee of a job?”
TEXT Kelly Peeler – Founder + CEO – NextGenVest – New York, N.Y.
Kelly NexGenVest is the money mentor for every student, the personal financial assistant for Gen Z. A student can text in to our service anytime, and get connected to what we call a money mentor, which is a
trained college student who can help them with any kind of financial questions.
TEXT Kelly studied history and economics at Harvard.
Kelly I was in college during the last financial crisis in 2008. I studied financial institutions and how they've been built, why they didn't work throughout history, how they led to different crises. I really honed in on John Pierpont Morgan and the creation of J.P. Morgan.
TEXT After graduating in 2010, Kelly went to work for the bank she had studied.
Kelly I wanted to actually go live and work within a financial institution. I worked within the investment bank, also switched over into asset management. That’s really where I got to see both this, how the nuts and bolts of financial institutions, banks, broker dealers, actually worked.
TEXT Kelly left J.P. Morgan in 2013.
TEXT She wanted to figure out how financial service companies could work with young people coming of age -- Gen Z.
Kelly I’m a Millennial. What I find really interesting and really exciting about Gen Z is that they're easily the most fickle consumer ever. They have zero brand loyalty. They have a totally different debt profile than even Millennials, they have a totally different attention span, they've grown up on Snapchat and messenger-based platforms, so that the way that they communicate is also totally different.
TEXT Gen Z is carrying huge amounts of college debt.
Kelly I think a lot of people misunderstand how completely unprepared the next generation is to actually deal with their student loans. 30% of students who take out loans end up dropping out of college, which is just easily one of the worst dents to your financial identity across your whole life. So it’s a really tough situation to get yourself out of as a, you know, 19- or 20-year-old.
TEXT In 2014 Kelly teamed up with Will Falcon, a computational scientist.
TEXT Together they launched NextGenVest to teach students financial literacy.
Kelly We initially started by selling online financial literacy curricula into high schools, and then started to see that one particular type of user, a low- to middle-income student, would ask for personalized and customized advice. And so, we decided to go all-in on that user, students who otherwise would not be able to afford help.
TEXT Falcon designed software that students and mentors use to communicate via text.
SOT Have you been getting any student loan questions, like specifically in the past hour? Yeah, that looks like one. So you helped this student get financial aid?
Kelly Students leave $2.7 billion of free federal aid unclaimed every year because they do not fill out the right forms. So we help students fill out those right forms. And that can help them reduce their overall student loan amount because that’s money they wouldn’t have to pay back.
TEXT NextGenVest has raised seed funding from a small pool of investors.
TEXT The company has six employees and more than 200 student mentors.
TEXT They have helped tens of thousands of students.
Kelly Helping Gen Z optimize their student loan portfolio will determine every future financial decision there afterwards. It will affect where they live, how many kids they have, if they own a house, if they own a car, how they think about the careers that they choose.
Kelly We're really thinking about, what does it look like to build the next 100-year-old brand for the next financial institution. And we really want to be the trusted adviser to be able to help Gen Z navigate any future financial decisions.