For decades, the tradition has been to get into a good college and earn a degree to kick-start your career. And, for most, this strategy has worked.
The only problem is that the majority of those who complete college leave with something more than a degree: a significant amount of debt. While there are many avenues for accessing the funding needed to attend college, there’s often no substantive strategy offered for paying that debt off in a timely manner. And that can be financially crippling.
As more students enter college, with only a limited number selected for scholarships and grants, the student debt load in this country continues to grow. The Federal Reserve Bank of New York reported in its Quarterly Report on Household Debt and Credit for the fourth quarter of 2018 that outstanding student loan debt increased to $1.46 trillion, which is $15 billion more than the previous quarter. It also reported that student loan debt rose by $79 billion in 2018.
The student debt load isn’t just impacting the individual students who enter the workforce, hoping they can find a job that enables them to make those monthly payments. I’s also slowing economic growth. A January 2019 Federal Reserve paper noted that young adults report their student loan debt is the reason they’re unable to buy a home. The same report also cited other research concluding that 20 percent of the decline in homeownership among young adults relates to student loan debt that’s been rising since 2005.
Besides potentially blocking homeownership, it prevents young adults from starting to build the personal wealth they could use to contribute to the economy in terms of buying power. It also stifles their ability to save money for other large purchases and retirement — and the less money they put into the economy, the more businesses suffer as well.
Despite these gloom-and-doom stats, fintech startups are addressing this problem with viable solutions and giving both employees and employers a shot at a brighter future.
Employer Contributions Ease Student Debt
In looking for a unique solution, fintech startups are reaching out to employers with a way to provide a benefit that new hires are sure to appreciate. FutureFuel.io offers its Student Debt FinHealth platform to small- and medium-sized businesses, as well as Fortune 500 customers. Partners in the platform include life insurance, HR and benefits, and credit union companies, such as Colonial Life, Student Choice Credit Union, and Ultimate Software, which are extending FutureFuel’s solution to more than 10 million users.
Similarly, Gradifi is intent on turning student debt payoff into an employee benefit that can attract and retain talent while helping them lower their stress levels over debt and focus on their performance. In addition to the ability for employers to directly contribute to student loan payments, an employee can choose to apply unused vacation days and bonuses to their student loan balance. The company also offers student loan refinancing programs to further reduce the financial pressure.
Proactive Approaches to Reducing Student Loan Balances
Fintech startups understand how overwhelming it feels to address student loan debt. That’s why companies like Student Loan Hero take a strategic approach that involves education to improve financial literacy while delivering a personalized strategy for each student’s loan balance.
This includes recommendations on how to lower payments, information on where to find refinance options, and insights into how to seek loan forgiveness. It also provides customized calculations to show students how quickly they can pay off their loans and offers a payment reminder feature.
Other fintech startups have focused on an online portal or a marketplace model for their student loan solutions. For example, LendKey is a student loan marketplace platform that connects young adults with student debt to local banks and credit unions for some of the most competitive refinancing loans available for education debt. LendEDU provides another marketplace to make it easy to shop for a refinance option for student loans.
Credible is another example of an online comparison platform for student loan rates, fees, and refinancing options. These fintech startups have branched out into other types of loan and refinance options, including home improvement loans, mortgages, and credit cards.
Stopping Student Debt Before it Starts
Additionally, some of these lending marketplaces have decided to take it a step further by locating scholarships, financial aid, and better student loan options with lower rates and terms.
Another startup combined the power of crowdfunding with the need to stop student debt before it grows larger. WeFinance provides a way for others to invest in a student’s dream of attending college. Each student who uses the crowdfunding platform can create a campaign and tell his or her story.
Then, investors can decide if they want to invest in that student’s education partially or fully. Once a person reaches his or her target funding goal through one (or many) lenders, the funding campaign closes. Students receive the funds after signing a simple contract. Those who invest can make a small return on their investment through loan interest associated with the funding.
Before these fintech companies receive an A+ for their efforts, however, there’s more work to do to tackle the country’s enormous student debt load. There’s plenty of room in the student loan solution marketplace for more fintech startups looking to ease financial pressure for new generations of talent. That talent, after all, is necessary to make companies successful, as well as to fuel sustainable economic growth. The American Dream may be harder to achieve, but these fintech businesses are working to keep it alive.