Scholly's founder, Christopher Gray, has filed a lawsuit against Sallie Mae, claiming wrongful termination and the unauthorized sale of student data that includes information about minors.

      TL;DR Christopher Gray, the founder of the scholarship app Scholly, which has 5 million users and was backed by Shark Tank, is filing a lawsuit against Sallie Mae in Delaware Superior Court and has also submitted a whistleblower complaint to the SEC. He claims that Sallie Mae dismissed his co-founders, terminated him for voicing concerns about data privacy, and is selling users’ personal information, including details about minors, to third parties. Sallie Mae denies these allegations.

      Gray created Scholly to assist students like himself in locating scholarships. Growing up in Birmingham, Alabama, he became the first in his family to attend college after earning $1.3 million in scholarships to Drexel University. He transformed this experience into a mobile app designed to connect students with financial aid opportunities based on their profiles. The app gained five million users, appeared on Shark Tank in 2015 where Lori Greiner and Daymond John both invested, and achieved the top download status in both app stores. In 2023, Sallie Mae, a student lending company synonymous with the American student debt crisis, acquired Scholly. Gray is now taking legal action against his acquirer in Delaware Superior Court and has lodged a whistleblower complaint with the SEC, claiming that Sallie Mae laid off his co-founders, terminated him for raising data privacy concerns, and is selling Scholly users' personal data, including information about minors, to third parties. The data reportedly sold includes students’ age, gender, race, and financial status. The company that purchased an app aimed at easing students' financial burdens is accused of profiting from their most sensitive information.

      The acquisition occurred as Sallie Mae aimed to pivot beyond its core student lending business towards an approach defined as student financial wellness. This acquisition allowed Sallie Mae to access five million users, primarily students and their families, who had willingly provided extensive personal and financial details in return for scholarship matching services. Scholly’s users saw the app as a tool designed by someone with firsthand experience navigating the scholarship process as a first-generation college student. For Sallie Mae, the acquisition served as a channel to reach a demographic likely to need student loans, although the company publicly framed the deal as an effort to assist students in locating free financial resources prior to borrowing.

      Initially, Gray spoke positively about the acquisition, sharing insights with founders on creating AI-driven companies and noting that the deal led to heightened support for historically Black colleges and universities. This relationship seemed stable until early 2024, when the lawsuit indicates the situation deteriorated in July 2024, when Sallie Mae laid off the Scholly founding team, including Gray’s co-founders. Gray asserts that around this time, he overheard Sallie Mae executives discuss intentions to sell Scholly user data. After raising concerns about data privacy, he was terminated roughly one year after the acquisition, with the lawsuit alleging his firing was retaliation for opposing practices he believed violated the commitments Sallie Mae had made to Scholly users.

      The allegations focus on two main claims: wrongful termination and the purported sale of user data without proper disclosure. Gray asserts that Sallie Mae sold data collected through the Scholly app, including sensitive information about minors, to third parties without adequately informing users. The alleged sold data includes categories like age, gender, race, and financial status, which are particularly sensitive when related to minors who signed up for a scholarship tool rather than a data marketplace. Gray seeks back pay, punitive damages, and legal fees. Sallie Mae has refuted the allegations and stated its intention to contest the lawsuit.

      This case highlights several factors influencing the technology industry. In the tech sector, startup acquisitions often follow a pattern where the acquiring firm absorbs the startup's user base and technology while dismantling the team responsible for its development. The economic rationale is straightforward: the users and their data are the real assets, not the founders or the vision for the product. When the acquiring company's business model hinges on monetizing the type of data the startup collected, the founder’s original vision becomes a hindrance rather than a benefit. Gray’s lawsuit claims he became that hindrance when he objected to a use of his users’ data that contradicted the implicit agreement between Scholly and its users: that students would share their personal information for scholarship matches, not for resale to third parties by a major private student lender.

      Sallie Mae has faced a history of regulatory and legal issues regarding its treatment of borrowers. The company reached a $60 million settlement with the Justice Department for allegedly charging service members excessive interest. The FDIC has settled with Sallie Mae over claims of unfair and deceptive practices. Borrowers have also accused the firm of racial discrimination in lending. In 2014, the company split into Navient, which services federal loans, and Sallie Mae, which focuses on private lending and banking, partially to distance the private lending operations from the regulatory complications of the federal loan portfolio. The Scholly acquisition was