The Paradox of VC-Funded Tech Tools for College Financing

As college costs spiral out of control, tech tools that offer students and families much-needed support are looking for viable business models to stay independent

As college costs and student debt numbers continue to rise, students and their families at all income levels have been asking, “is college worth it?”— and in the past 5 years, the conversation has intensified. Parent communities that discuss college admissions and finance, such as Grown and Flown and Road2College, have ballooned in size and launched paid products and services. Journalists in outlets like the New York Times and Wall Street Journal have written blockbuster stories and books on financial aid and student debt with provocative titles like Game of Loans, The Debt Trap and Indentured Students. Student debt cancellation and mitigation has become  a prominent political issue in political campaigns as students and parents struggle to pay off loans.

The conversation is perhaps most virulent among those families who self-identify as being in a “donut hole” or “no-man’s land”: middle income families who feel left out of the financial aid formula because they think they are too rich for need-based aid but not rich enough to actually afford to pay full tuition. Many of them are frustrated by the system and by how colleges operate, as documented by Caitlin Zaloom in her 2019 book Indebted: How Families Make College Work at Any Cost (for a summary, see her widely-circulated essay in the New York Times). 

While families are scrutinizing the financial cost-benefit ratio of college more and more, the available tools at their disposal are doing little to address these concerns. College admissions tools are numerous, but many of the most prevalent  ones have ignored or treated the financial implications of the college decision as secondary to academic or social ‘fit’. 

Naviance, now owned by PowerSchool, is the market leader in this space, reaching over 10 million students nationwide (it is sold and marketed through schools and districts). While the software works to “provide students with tools to plan for a future that aligns with their strengths and interests”, financing and debt takes a backseat in the user experience despite being at the front of students’ and families’ minds.

Meanwhile, the financial aid system is extremely complicated and opaque, making it hard for families to know how much they will actually pay before applying. Most families don’t know, and aren’t told, that they can “appeal” a financial aid award and ask for more money from a college - often successfully. While free content about “how to pay for college” abounds on the internet on sites like Cappex, Nitro College, College Board’s Big Future, or US News, it is both extremely challenging to navigate and difficult to infer what the advice  means for each individual family or student, given their particular financial situation. 

Misaligned Incentives

Much of the college admissions content out there comes across as shallow and unhelpful because of the business model that supports its creation. Traditionally, free content on the internet is supported through the sale of advertising space and/or data on the site’s visitors (known as lead generation). In the case of the college admissions market, the buyers of this advertising and data have tended to be either colleges or student lenders, neither of whom are incentivized to arm their consumers with full information about financing options. 

• Colleges buy information on prospective students in order to be able to market to them; if you took the SAT or ACT, you’ll remember the reams of college brochures that started coming in the mail directly afterwards - this is a result of the College Board selling student lists to colleges and universities, and still happens today. 

• Student lenders know full well that a student who is researching financial aid or filling out a free student loan calculator is a student that may soon need a student loan. So lenders also buy leads (usually lists of email addresses) and ad space from sites like Nerdwallet and those listed above. (Lenders also have invested heavily in SEO and paid marketing to bring those users directly to their own content and calculators.)

The unmet consumer demand for detailed, personalized, and trusted information about college financing has created a vacuum that many Edtech companies jumped to fill over the last ten years. Such companies have hoped that better data and technology could make it easier to help families figure out how to pay for college, appeal for more aid, and make wise financial decisions about education. 

But the question, again, would be the business model. The incentives of colleges and lenders are minimal… or perverse (the full story on college pricing and student loans is not always rosy). Could someone make a business case to colleges and lenders that leads generated from better, more personalized consumer tools would actually be more valuable to them? Was it possible to maintain user trust and act on behalf of the consumer while also taking money from the colleges and lenders? Or was there another payer out there? 

An aside: This article is primarily addressing tools aimed at a “traditional” student population (first time full time students at 4-year institutions). For non-traditional students, other financing options and financial aid considerations apply.

A New Generation of Finance Tools

Over the past decade, an entire new generation of college financing tools were created. Many of the tools not only worked to provide accurate financing information, but also to help families with financial aid appeals as part of their mission to increase consumer power. The list below represents tens of millions of dollars invested by VCs, including leading edtech funds like Reach Capital, GSV Ventures, Owl Ventures, Rethink Education, and Emerson Collective.

• College Abacus (founded 2012), one of the earliest players in this space, was a tool which recreated colleges’ net price calculators in one central location - allowing students to easily compare prices. 

• RaiseMe (founded 2012) allows students to track achievements throughout high school and see how those will impact their aid at Raise partner colleges. 

• Going Merry (founded 2016)  is a scholarship application platform that also built tools to help students apply for financial aid. 

• Frank (founded 2016) has a tool that streamlines the FAFSA application along with a scholarship search engine. 

• Edmit (the company I co-founded in 2017), developed a proprietary algorithm for personalized net price estimates and also presents detailed outcomes data by school and major, helping families plan for the right amount of debt. 

• Mos (founded 2017) launched with a product that streamlined financial aid applications for federal and state grants.

• TuitionFit (started in 2018) is a platform that allows students and families to upload their financial aid offers and to see what other students have paid. 

In addition to the VC funded options, nonprofit initiatives like Bottom Line or UAspire focused explicitly on increasing college access for low-income students, generally relying on high-touch personal supports that help students and families discover how college could be affordable for them. In contrast, the new wave of Edtech companies above marketed themselves to a range of users via consumer marketing channels, marketing partnerships, and through schools and college counselors. The large group of “donut hole” middle class families mentioned above were often early adopters of these tools, as they tend to have higher levels of awareness and resources, and are searching for solutions.

(It’s important to note that even these ‘donut-hole’ families, despite being highly alert to the issue, are still often mistaken about the key facts. Many do  actually qualify for need-based aid, and are usually not asked to pay the full sticker price.)

Acquisition Mania

These companies listed above found a large addressable user base hungry for information and advice, and experimented with a variety of business models, including consumer pay, sponsorship/marketing relationships, or trying to find a balance by generating paid leads for student lenders and colleges while offering accurate, actionable advice. But, despite their best efforts to find a sustainable business model on their own, most are no longer independent. 

• College Abacus was acquired by ECMC, after battling with colleges blocking the site from accessing their calculators. ECMC no longer supports the product. 

• Raise.me was acquired by CampusLogic (which itself was just acquired by Ellucian), a company that builds financial aid products for colleges. 

• Frank was acquired by JP Morgan Chase. 

• Going Merry was acquired by Earnest, the student lending company owned by Navient. 

• Edmit was acquired by Vemo Education, an ISA provider who serves higher education institutions. 

• Cappex was acquired by EAB, which provides enrollment management products and services to colleges.

• Nitro College was acquired by Sallie Mae in January. 

Why all the acquisitions? In all of these cases, the innovative student-facing products had built significant user bases and brands through consumer and K12 school channels, and this audience, as we know, is considered a valuable asset to colleges or financial institutions for lead gen, market data, or brand building. Some of the companies had even grown meaningful revenue before acquisition. But, in almost all cases, building a truly venture-scale software business proved challenging.

As of this writing, most of the tools above are still available to users, though time will tell how the acquiring companies develop or maintain them. Needless to say, it’s more expensive to create good software than to create SEO-optimized content - not to mention those perverse incentives which are unchanged.

Meanwhile, content-heavy financing sites still abound and are still mostly supported by advertising or lead gen business models. Nerdwallet (now a publicly-traded company), College Board, and Niche provide free content and tools in exchange for selling student information to lenders, colleges, or others. (Although one wonders how the College Board will operate in a world in which test-optional admissions is widespread and fewer students take the SAT - meaning those valuable email lists shrink in size.)

A few for-profit software players, notably those without significant VC backing, are still building independently. 

• TuitionFit continues to market and develop its aid comparison platform, as do MeritMore and Road2College. 

• Some software providers have chosen other customers to target: College Aid Pro provides a similar set of data and tools as Edmit does, but for financial advisors to use with their clients rather than for students and families directly. 

• Invite Education builds whitelabeled tools for financial institutions. 

• Mos has pivoted its product and message to banking, with only a hint of college finance (“the debit card that helps you save money on fees and gets you scholarships for college.”), seemingly following the A16z maxim that “every company will be a fintech company”. In fact, the company just raised $40m to continue on its path to becoming a bank.

A few nonprofit models have also taken up the charge to improve on the status quo around financing information. 

• Funded by prestigious philanthropic brands, Moneythink is growing and building a financial aid comparison product along with a network of peer coaches. 

• The Gates Foundation launched its own tool, the Equitable Value Explorer, based on its thought leadership on how the value of postsecondary education should be measured.

• And of course, the federally-maintained College Scorecard, the data of which powers many of the tools above, is still directly available for consumers but has low usage and awareness relative to other sites.

What’s Next?

Student debt continues to be top of mind for many Americans, and it’s clear that there is a ‘user pain’ in college financing. The problem continues to be - as is often true in the education market - identifying the right payer in a complex landscape. The consumer wallet is huge, with $500b being spent on tuition annually, but consumers are dispersed and most have low willingness to pay. Who else has money? As we saw from the acquisition patterns, the colleges do, as do the student lenders and financial institutions. But all too often they’re the ones benefiting from opacity, and probably won’t value the traffic from better consumer tools more highly than they do traffic from other lead gen sites. Without a business model that supports more investment, the innovation that can truly transform the game for students remains elusive.