(Reuters) - Sue Khim was in her third year of medical school, $50,000 in debt and wondering if she would ever dig herself out.
Instead of simply making the minimum monthly payments on her student loans, Khim scoured the Web to find banks that offered better interest rates. The discrepancies shocked her, with rates varying from 11 percent to 6 percent.
“The comparison shopping took forever and it was really painful,” said Khim, noting the best rates, most often offered by credit unions, were hidden while the less consumer-friendly terms from major lenders were more front and center. “Students are, many times, overpaying for loans, because the info to compare their options isn’t available to them.”
Khim, who describes the situation as a "college affordability crisis," wanted to ease the pain for other students and dropped out of school to turn her idea into Chicago-based startup Alltuition (www.alltuition.com). The site, which originally launched as EduLender in July 2010, boasts the largest database of student loans in the U.S., said Khim. Users are able to track rates, fees and terms for hundreds of lenders and compare them to help students choose the best fit.
The recent name change was made because Khim felt EduLender was too limiting and she wanted something that would better showcase the platform’s offering as “a really comprehensive kind of encyclopedic-type of process” that she added, “lets you customize your complete tuition costs.”
Khim coded the original platform herself and entered it into a business-plan competition at the University of Chicago. She didn’t win, but got a lot of positive reaction, including some from local investors that ultimately fell through. Dejected, Khim was forced to put the venture on the backburner while she worked a part-time job to support her parents and younger brother and programed on the side as a freelancer.
In her spare time Khim used dating service OKCupid to find software developers that she could potentially work with and met Sam Solomon, who helped perfect her business model and quickly became a co-founder. Shortly thereafter the pair ended up pitching Alltuition to OKCupid founder Sam Yagan, who became one of the company’s first investors.
Yagan was also included in Alltuition’s first major funding round of $1 million that was announced last spring. The round was led by Chicago’s Hyde Park Angels.
Alltuition works on a “freemium” model, offering its loan search database for free, but charging for premium services that include helping students manage their debt and apply for government loans.
“It’s a process that could take days, and we make it into an intuitive process that takes minutes,” Khim said.
Overall U.S. student debt hit a record $945 billion last month and the average American student now graduates with $24,000 in debt, an increase of about 25 percent from an average of about $18,000 in 2004, according to FindAid.com.
Khim, who won’t disclose the site’s number of users, said Alltuition has been enjoying “double-digit, month-over- month growth” in both traffic and users and has helped repay more than $40 million in student debt so far this year.
The company, which employs a fulltime staff of nine, is targeting 2012 as a big growth year, where it takes on competitors that Khim referred to as “consumer hostile,” because they promote the higher loan rates offered by the banks that advertize on their websites.
“If a business is incentivized to advertise to you the most expensive loans, by the lenders that have the biggest marketing budgets, that’s not a business that helps consumers,” she said, noting that online student lending is a multi-billion dollar space. “We’re trying to collapse the market. And that’s a real challenge for a small business.”