Student Debt, Disrupted: How Fintech Is Disrupting the Student Loan Industry

College life is supposed to be an enjoyable journey. As you step into your new social circle and explore newfound opportunities, you will eye lucrative professional avenues. Graduating with student loan debt is the last thing you’d want, but that’s how the reality stands! Around 69% of US graduates leave college with a student loan debt.

With the cost of higher education shooting up, financing your college can be challenging. While the government sets federal loan rates, you may even be paying higher interest on private loans. The end result is you graduate with zero savings. Isn’t it pretty dangerous for your long-term planning? Student loan debts can delay your retirement goals no matter how much you earn through your side hustle or job while in college.

This need not be the case for financially resilient students who have already started counting on fintech lenders. If you have been seeking a possible solution with an alternative source of college funds, it’s time to understand the fintech lending models. Fintech has been disrupting the student loan industry, challenging private banks and easing up loan disbursals for students.

How menacing does student loan debt look?

Financial experts habitually advise individuals to be debt-free early in their lives. On the contrary, student loan debts can mess up your long-term planning and even delay life events like marriage or raising a family. Let’s take a look at these figures that tell the story.

• In 2021, federal student loan borrowers had an average debt of $37,338.
• Private student debt looks even more menacing at $54,921 per individual.
• For a bachelor’s degree, students borrow more than $30,000 on average.
• More than 45 million Americans are now in student loan debt, of which 92% have federal debt.
• Even after 20 years after getting enrolled in college, around 50% of borrowers owe $20,000 each to lenders.

How can student loan debt affect your financial planning?

Most borrowers fail to realize the long-term implication of student debt on their financial planning. Graduating with debt can derail your long-term plans and even prevent you from attaining financial independence. You might have to sacrifice your plan to purchase your property before marriage or continue living with your parents for a few more years.

• Given that a college education happens to be a prerequisite for better financial stability for most students, it’s easy to accumulate debt. This debt has a ballooning impact, which manifests in society at large.
• Over 20 years, the average student loan borrower ends up paying $27,000 just on interest.
• On average, you need to repay $503 on account of your student loan debt.
• Student loan obligation prevents millennials and Gen Z from trying and making any savings. The debt burden further balloons to lower levels of income accumulation compared to previous generations at a given age.

Financial hurdles also affect the credit score in case of defaults or late payments. This makes it further challenging for students to get access to loans. Besides, red marks on the credit report make future loans expensive. This implies they would end up paying higher interest rates on real estate mortgages or car loans.

Federal student loans and their shortcomings

There’s no denying that the federal government has approached the critical problem of rising education costs by strategizing financial aid. However, is this strategy adequate to bail students out of the loan burden?

You need to repay your federal loans unlike scholarships or grants, which are virtually free funds. Whether you defer your payments or drag the loan on for 25 years, your obligation remains a burden.

Federal funds fall miserably short

You also have access to aids, which can be need-based or non-need-based. Loans and work-study programs are not the solution: they partially ease up your cash flow to finance your college education. By far, students heavily count on federal and public loans to cover the majority of fund requirements.

While the federal government helps students avail of college education, it doesn’t consider the credit risk. Regardless of your ability to repay, you may qualify for federal loans. However, have you strategized the ideal repayment plan to clear off your federal loan debt and walk off to embrace financial independence?

No repayment assessment

As a lender, the federal government doesn’t consider your ability or willingness to repay the loan. Most importantly, the government has enough money to lend, which automatically keeps the debt burden mounting.

Considering the financial stability of an 18-year-old, is it logical to expect timely repayments? Eventually, the very nature of federal loans and the lack of financial literacy among the borrowers lead to a debt burden.

The situation worsens for college drop-outs. They find it challenging to get student loan debts forgiven by filing for bankruptcy.

Forgiven debt invites tax

It’s easy for college students to end up with…