Each year 18,000 to 19,000 students graduate from medical school — most of them with a disturbing sum of debt. In fact, the average medical school debt balance is now $189,165, according to the Association of American Medical Colleges.
And while most residents and fellows have federal loans and qualify for forbearance programs that limit monthly payments while they are in training, even $300 to $400 payments can be a burden given their $50,000 to $60,000 salaries.
A Cleveland startup plans to ease this burden.
Splash Financial officially rolls out in April with the launch of its digital lending platform, makeasplash.com. The company will specialize in refinancing medical school loans for residents, often rolling multiple federal and private debt lines into a single, low interest loan. Currently that rate is 5.49%, about one to two points lower than conventional student loans, said founder and CEO Steven Muszynski.
What's more, residents who qualify for refinancing are only required to pay $1 per month until they finish training programs, which would save Splash Financial customers an average of $3,000 to $5,000 annually at a time when they need it the most.
"Most of them are living paycheck to paycheck," Muszynski said. "A $3,000, $4,000 savings today is the difference between taking a vacation or not, stepping up to a nicer apartment or just going out to dinner a few times a month."
Muszynski's journey to Splash Financial has not always been smooth sailing. Four years ago, he set out to commercialize a college saving account offering that — in addition to helping parents save more and borrow less for their college-bound children — was developing a loan product that participating banks could use to compete with higher interest federal student loans.
LendULink, as the company was initially named, went through the Quicken Loans accelerator program Bizdom and "made a lot of connections," according to Muszynski. However, as a startup, it struggled to gain traction in the market, primarily because of the complexity of the offering.
In late 2015, meanwhile, a friend approached Muszynski with his own loan woes. The friend had $200,000 in medical school debt and, with a typical resident's salary in the mid-$50,000s, was unable to refinance at a local bank. Muszynski went to work, calling on his contacts in the refi world and researching options — or rather lack thereof.
"Nobody could help him," he said.
LendULink quickly pivoted to fulfill this unmet need with Splash Financial's predecessor, GradSchoolLoans. While the company was still working with banks, the relationship was an easier sell.
"We essentially presold loan volume to banks," Muszynski said. "That is how we are able to finance all the loans for the consumers."
The rebranding to Splash Financial is the final step to bringing a product to market. It is also a better reflection of the impact the company wants to have on the lives of young doctors and medical specialists, according to board member and investor Dr. Ron Flauto. Flauto, who is also founder and chief operating officer of the American Kidney Institute in Cleveland, hires new doctors on a regular basis. Their No. 1 complaint, he said: "I don't know how I am going to pay these grad school loans.
"Medical school loans can be paralyzing, $200,000 a year, that is literally a mortgage and many of them are newly married or have a child."
Muszynski said that while it's nice to know the company is poised to make life easier for the 90,000 residents and fellows in the United States, what it really aspires to do is give these young professionals the interest rates they should have been offered in the first place.
"If you look at aggregate risk — and that is what interest rates tend to be based on — doctors are the lowest risk borrowers that there are, yet they are getting the same rate as every other grad student," he said. "A lot of these residents, their salaries will spike in the future. They are going to pay back their debt. They are very low risk. So why burden them today?
"For us, we just want them to stay current. We want them to realize the loan is there, which is why we charge a dollar."
Splash Financial completed a venture round in January, raising $3.3 million, and Muszynski estimates the market opportunity somewhere around $17 billion, given the country's 90 million residents and fellows have nearly $190,000 in "mispriced debt" a piece.
"We are pretty happy about the support we have been able to get from our investor base. To raise that amount in Cleveland is exciting and it shows the commitment to early-stage startups that the city has, that the investor base has," he said, "and it seems that people understand what we are trying to do."
"Splash hopes to tackle med school debt" originally appeared in Crain's Cleveland Business.