The advent of fintech and its instant popularity among college students is demolishing the monopoly of private banks in college financing.
If you are new to the term, ‘fintech’ encompasses two dynamic concepts, finance and technology. Combining the latest digital technology and financial services, fintech holds the potential to revolutionize loan financing for students.
Currently, as many as 45 million US citizens have a combined education loan debt of $1.7 trillion. In terms of the loan amount, education loan debt stands only second to mortgage debts in the US. This implies that people have more student loans compared to auto loans, credit card loans, or even personal loans! Unless you start cultivating financial resilience right from your college days, your loan burden can haunt you right up to your forties!
Well, fintech may hold the potential to bail you out of the financial mess! With less stringent approval norms and easy disbursement of loans, top fintech companies have made loan availability easy for students. As a student, you can now look beyond federal and private loans. No wonder fintech is already revolutionizing the borrowing process.
Why is fintech booming in the student loan market?
Fintech companies have taken the education loan market by storm with easy disbursal and better convenience in the repayment model. Besides, reputed fintech companies are also cultivating better financial awareness among students. Financially literate college students are better poised to take control of their finances.
With the US reeling under the student debt crisis, forward-thinking fintech companies have developed suitable products to ease up financial pressure on college students. At 11%, student loans in the country have the highest default rate. Besides, private education loans don’t have any scope for forgiveness, further eliminating the chances of write-offs.
In the last decade, fintech companies have come to the rescue of thousands of students. With rate comparison services, loan consolidation, education loan refinancing, and flexible repayment models, fintech is making a difference in borrowing habits.
How is fintech revolutionizing the student loan borrowing process?
The traditional process of obtaining a student loan requires you to reach out to the bank or financial institutions. With private banks, students often find it challenging to fulfill the eligibility criteria. Even if they have a parent as a co-applicant, the interest may be high owing to poor credit scores.
Fintech companies are using this stringent approach of private lenders to their advantage. They tend to be more generous and less picky, thus enabling students to obtain finances easily. Let’s explore how fintech lenders make the borrowing process breezy for students.
Better student loan lending models
Traditional banks offering private loans in the US accept deposits in different accounts from their customers. Now, they use these deposits to extend student loans at high interest. This difference in interest between loan and deposit accounts constitutes private banks’ profit.
Top fintech players have developed a more practical business model. They have come up with the concept of peer-to-peer lending. Some fintech startups have developed platforms where individual lenders can earn a high interest by lending their money to students as loans. These platforms earn a small amount as a fee for establishing the connection.
This innovative lending model eases up education loan processing for students. They also enjoy better flexibility and faster approval compared to traditional private loans.
In terms of exploring technology, fintech companies have left no stone unturned. AI, big data, and completely virtual loan processing mechanisms have made financial privileges accessible to students.
In most traditional banks, the underwriting process is still semi-manual. Fintech lenders have automated these processes, thus speeding up loan processing tasks. Eliminating human interference in loan processing naturally reduces operational costs, leading to lower and more competitive interest rates.
Seamless approval and easy funding
As a student, you might land up in financial emergencies when you need immediate access to funds. With fintech companies ready to lend you loans instantly, you would no longer bank solely on private lenders. With faster applications, instant approvals, and timely disbursals, students enjoy faster access to funds.
As a student, you might not have a decent credit score or adequate credit history to qualify for private loans from traditional banks. However, fintech companies ease up the funding process significantly with instant access to funds.
Robust data security
Although fintech companies are relatively new to the industry, they have won the trust of parents and students. With robust data security using advanced technology, fintech players ensure optimal financial and personal data security.
Besides, popular fintech lenders also use data encryption techniques and stronger website security. This way, they continue to dig deeper into the student loan market.
Unique loan offerings to students
The last few years have witnessed fintech companies diversify their portfolio of offerings. After starting with products like personal and auto loans, they have ventured into consumer durable loans, business loans, and student loans. As a college student, you can even apply for a debt consolidation loan at reputed fintech companies. The diversity of offerings, along with generous approval and reasonable rates of interest make fintech companies a prime choice for students.
Moreover, these banks also offer unsecured student loans, which involve no collateral. Understandably, these institutions are giving tough competition to private banks. There’s no denying that fintech lenders have been challenging traditional banks, targeting their status quo.
Top fintech players taking on the student loan industry
Let’s look at the top fintech companies in the US that have been taking on the student loan industry.
Sallie Mae is one of the leading fintech companies. In the first quarter of 2020, Sallie Mae had loan assets worth $23.5 billion, including both graduate and undergraduate loans.
One of the perks of reaching out to this fintech lender is that it approves loans for expensive career paths such as dental schools, medical schools, law schools, and medical residencies. Apart from financing student loans, Sallie Mae allows parents to apply for loans on behalf of their students. Like private banks, the parents undergo a credit check before the lender sanctions the loan.
Students find the repayment plans of Collegeave flexible enough. Most importantly, this fintech company has introduced the provision of deferring payment until you graduate. Nevertheless, the platform encourages college students to start repaying their debt while in college. If you are already engaged in a part-time job or have been making some money through a side hustle, repaying your loan to Collegeave would be a logical decision.
Citizens One is a subsidiary of Citizen Bank. This is a dedicated lending arm specializing in student loans as well as other consumer loans. International students willing to pursue higher studies in the USA can obtain loans from Citizen One. However, the bank requires a co-signer and checks their credit score.
Just like Citizens One, Discover also has a student loan lending arm. What makes this lender popular among college students is the absence of origination or late fees.
Discover has a long record of success in consumer loans through credit cards. They have applied this industry knowledge in the student loan segment as well. Students benefit from their flexible repayment options. So, if you run into financial hardships during college, this lender might help you ease up financial stress.
CommonBond has emerged as a popular fintech player offering student loans. Three grad students launched this startup to mitigate student financial woes. This is an NYC-based company offering three types of loans.
Firstly, MBA students have a specialized loan product to explore. CommonBond has designed another loan for parents and students. Lastly, you have a refinancing loan product for students. CommonBond has financed student debt assets worth $300 million while raising over $40 million from its investors.
Apart from the lenders on our list, you can also bank on reliable companies like LendKey and Credible.
Should you refinance federal loans through a fintech company?
A typical federal student loan is designed to relieve a student’s repayment load. However, as a student, if you are already making good money through your job or side hustle, why not refinance the loan at a better rate?
Fintech lenders offer student refinance loans at attractive interest rates. Besides, lenders like SoFi readily refinance borrowers with lower risk, which has helped it emerge as one of the most promising fintech lenders in the US.
Now, it’s natural to wonder how these lenders identify low-risk borrowers when you haven’t got a credit record long enough to demonstrate your creditworthiness. They consider your major and track current employment trends and salaries. SoFi, for instance, offers student loan refinancing on dental and student loans. This is because the lenders are confident about the borrowers’ repayment capacity, considering the employment trends.
However, getting your federal student loan refinanced through a private lender or fintech company wouldn’t allow you to take advantage of any government assistance program. This includes privileges like enrolling in income-driven repayment plans. Neither can you defer your payments through the federal student loan payment freeze program.
So, if you are confident in your repayment capacity and are financially well poised, it makes sense to refinance your federal loan through a fintech company.
Repayment is key!
The emergence of fintech companies in the student loan financing industry has been a positive development in the last decade. Financially informed students are taking advantage of strategic benefits like flexible repayment options and lower interest rates, fueling the growth of these fintech lenders.
If you already have a student loan and are keen to repay your debt at the earliest, find a suitable side hustle or even a full-time job. Either start repaying your federal loan or get it refinanced through a private lender. Under any condition, don’t let the burden of interests accumulate and throw your long-term financial planning off the track. Cultivating financial responsibility while in college would help you take a leap toward your financial freedom.
What is fintech lending?
Unlike traditional lending instruments, fintech lending largely depends on digital solutions and technology. This facilitates faster loan processing, sanctioning, and disbursal. These are app and web-based solutions where students and professionals can find cost-effective financing options.
What are the three categories of fintech loans?
Fintech loans basically come in three forms: B2B, P2P, and B2C. Student loans typically fall in the B2C or even P2P category. However, the latter might be a rare occurrence. The B2C model involves businesses (fintech companies or banks) lending to consumers (students). The company acts as an agent between the lender and the borrower. Whereas the P2P model involves direct lending to the end consumer by the lender himself.
Which body regulates fintech?
The Consumer Financial Protection Bureau (CFPB) oversees any legal challenges with fintech loans. If a customer feels he’s been cheated or overcharged in terms of interest agreements, he can approach the CFPB for redressal.
How fast can fintech companies help me with loans?
With the advancement of technology, some fintech companies process loans within minutes. However, it’s safe to apply for your loan, considering that the lender would scrutinize your profile and disburse the amount. So, the entire process can take anything between a few hours to a couple of days.
What is the process of obtaining student loans from fintech companies?
Simply apply for the student loan on the app or website of the fintech company you choose. The lenders would carry out an online verification process and check out your credit score and other financial documents. They would offer you multiple loan tenures along with the repayment terms. Based on your preferences and eligibility, they would then disburse the amount to your bank account in the next few days.