Whether you buy a latte with your smartphone or send an e-transfer to a friend, you can thank the latest fintech innovations for these convenient transactions. Shorthand for the place where technology intersects financial services, fintech defines an eclectic group of data-driven companies varying from tiny startups to unicorn status enterprises.
As fintech grows from its niche corner of the financial world into a prominent sub-sector of Wall Street, no field is immune to its effects — including education. The post-secondary world is one of many industries transformed by these new services, and emerging fintech companies may provide the key to unlocking financial stability for students facing record-high costs.
Last year, the College Board studied tuition rates over the last 30 years in its Trends in College Pricing report. Its findings revealed students attending a public four-year institution is paying 213 percent more than their counterpart did in the 1987–1988 academic year. Students of private schools saw an increase of 129 percent over the same time period.
Some may argue these prices are adjusted to account for inflation, but Bloomberg.com reports post-secondary institutions are raising costs faster than the rate of inflation. College tuition has grown five percent every year, while inflation hasn’t surpassed 3.14 percent in the last eight years.
Unsurprisingly, this has a direct impact on how students are graduating. According to the latest figures, 44 million Americans owe $1.3 trillion in outstanding student loans. As much as 11 percent of these accounts have gone into delinquency, while another 38 percent are in deferment.
Despite its costs, higher education remains a popular option following high school as it’s a powerful economic divider. The median income of individuals without a degree is $36,000, while those who have graduated from college earn roughly $60,000 — that’s a difference of 67 percent. As a result, enrollment is on the rise even while higher learning becomes less and less affordable for the average person.
Fintech can help alleviate the burden of student debt
At its core, fintech leverages innovative technologies to service consumers typically excluded by traditional financial services. While this group typically includes the unbanked and the underserved, those set to benefit from fintech are also vulnerable students facing considerable debt. In automating banking services on a convenient online platform, fintech can help students in three major ways.
- It improves financial literacy
Disenfranchised consumers are often in their position because of a lack of education. Without proper financial literacy, they won’t understand the financial jargon making up the terms of the most basic financial products. From mortgages and payday loans to auto loans and credit cards, these financial products require a basic understanding of interest and numeracy. With so many students relying on loans to help them pay for their education, financial literacy can help them avoid products with terms and conditions outside of their means.
The financial experts at MoneyKey strive to educate its customers by offering a practical resource page of budgeting tips, credit dos and don’ts, cash loan terminology, and savings guides. This portal is available online for free and outlines simple ways even struggling students can unearth savings. Visitors don’t have to book time with a financial advisor to receive this advice or pay for its services, making it a realistic alternative to traditional methods of learning.
- It streamlines money management
Financial literacy and a budget go hand in hand. This financial document is an important tool that outlines upcoming expenses, tracks ongoing ones, and helps people save for future events. Traditionally, creating a budget is a time-intensive task, but fintech apps like Mint and You Need A Budget automates this chore.
These apps are free to download and provide users with a simple, digital way to track expenses and manage their money — without any intermediation from their bank. They sync with various financial accounts, including any student loans or personal loans, and aggregates a user’s various financial history onto one profile. Though they aren’t the same educational tool like MoneyKey’s information portal, they offer daily notifications about these budgets to improve users’ relationship with their money.
- It offers solutions post-graduation
Another financial gap fintech companies have identified when it comes to the student experience is that graduates aren’t sure how to manage their debt off-campus. While few of the biggest lenders provide practical help to those facing their repayment, fintech companies in this space are looking to help students pay off their debt.
The Federal Reserve’s Report on the Economic Well-Being of U.S. Households reveals the average monthly loan payment is just $393. If graduates were to follow the minimum payments suggested by their lenders, they could end up spending over $60,000 in interest fees on top of their debt. An app like ChangeEd hopes to reduce interest’s power over what graduates owe by helping them eliminate debt faster. Its app produces automatic savings created from spare change by syncing with users’ checking accounts. It rounds every purchase they make with these cards to the nearest dollar and invests the difference towards debt.
Fintech will play a role in financial solutions
Fintech may represent a diverse platform of services, but together, they break down barriers restricting consumers from controlling their finances. It leverages innovative technologies by democratizing access to financial information and services traditionally kept behind a paywall. When taken to campus, fintech offers students a relatively low-cost method of managing their debt with just the smartphone in their hand.
As tuition and other incidental fees continue to rise, so too will students’ reliance on loans. Until things change, fintech could be the answer to many financial problems students face today.