Why FinTech Is A Key Player In The Fight Against Student Debt


FinTech isn’t just a term describing unicorn-status enterprises disrupting Wall Street. As a growing industry that represents any financial service that relies on technology to deliver its goods, FinTech has representation all over the world — including campuses across the U.S.

FinTech is transforming education in more ways than just the updated college syllabi offering blockchain tutorials. Some FinTech companies could provide financial support to students struggling with record-high student loans.

FinTech targets the underserved

FinTech is a broad category of data-driven companies, ranging in size, scale, and direction. It’s a term that fits the backend processes of traditional banking institutions just as well as it defines an emerging group of mobile banking apps. While it’s a comprehensive definition outlining much of the financial world in the post-tech-boom, FinTech has a specific meaning when used in a certain way.  The kind of FinTech that’s making the news is a particular subset of customer-facing services that benefit an emerging market of digital consumers.

The youngest Millennials join Generation Z as the first digital natives, so they’re uniquely positioned to take advantage of these digital services — as are other consumers traditionally excluded by legacy banking services. There’s an overlap in those who are young, uneducated, and poor; they’re all financially vulnerable.

FinTech is a stepping stone to financial literacy

According to Investopedia, financial literacy is the understanding of topics relating to personal finance, money, and investing. More specifically, it involves understanding key concepts like inflation, diversification, and compound interest according to Standard and Poor’s global financial literacy survey.

Financial literacy is the cornerstone of financial stability. Everything from student and personal loans to credit cards and auto loans have rates, terms, and conditions. If borrowers can’t decipher their meaning, they can lock into a product or service that doesn’t serve them to their best abilities. For a student, not grasping these products could mean locking into a student loan’s variable interest rate when they should have chosen a fixed rate — or vice versa.

FinTech companies like MoneyKey are educating its customers by offering real-world budgeting tips, cash loan terminology, and savings guides. These online resources are an opportunity to learn about online lending solutions, interest rates, the best practices of credit, and other basic yet fundamental aspects of healthy finances.

Fintech simplifies money management

Next to knowing basic financial terms, understanding your personal financial situation is an important step towards stability. It’s easy to overspend when you aren’t sure what you should be spending in the first place. A budget can help you with that. When you know your income and your expenses, you’re in a better position to recognize your limits. It’s also a great way to anticipate or save for future expenses.

In the past, a budget was a relatively low-tech addition to your financial toolkit, but FinTech companies like LearnVest and Mint are digitizing this document. They sync with your existing financial accounts to create an accurate financial profile that includes income, expenses, and debts. In aggregating these accounts into one convenient place, customers are granted a bird’s eye view of their finances at any given time. They also track expenses in real time. These apps update a user’s profile accordingly and can send out notifications when they’re in danger of overspending.

While not explicitly an educational resource like MoneyKey’s guidelines, apps like LearnVest and Mint provide insights into a student’s relationship with their money. At a time when you’re learning how to pay rent, grocery shop, and save for the very first time, FinTech’s money management is an essential tool for students looking to limit their reliance on loans.

FinTech follows you off campus

Even with saving and working throughout your undergrad, the sheer cost of post-secondary education is too high for most students to pay without financial assistance. According to the College Board’s Trends in College Pricing, tuition has seen unfettered growth — with post-education institutions raising tuition faster than the rate of inflation. Their report compared the costs faced by the Class of 2018 to graduate with a four-year degree from a public institution to that of the Class of 1988 and found that modern students paid 213 percent more.

Unfortunately, wage growth hasn’t seen similar increases, making these costs hard to cover without help. About 44 million graduates share $1.521 trillion in student loan debts — which a new record according to the National Reserve.

A vital part of money management for students is managing their debt by addressing the issue of interest and minimum payments. Like many people struggling with debt, students tend to pay the minimum monthly payments on their student loans. According to the Federal Reserve, that averages out to just $393 per month. If they followed these basic payment plans, they could be spending more than $60,000 in interest fees in addition to the loan itself.

A FinTech app like ChangeEd aims to help students repay their debts faster to avoid this added weight of interest. Like LearnVest or Mint, the app syncs with the user’s financial accounts. It automatically rounds up every purchase they make from their checking account and invests the differential towards their debt repayment.

Debt can seem like an inevitability when it comes to earning a higher education. Until the student loan system changes, students will have to look towards alternative means for help when managing their finances. While FinTech represents a broad category of services, its core principles offers students a way to take control of their finances on and off campus. It includes free services from mobile apps that help them improve their financial agency. There’s no need for an account with a traditional bank that comes with fees; students can access these services with just a smartphone and some Wi-Fi.

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