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Can FinTech Help Solve America’s Student Debt Crisis?

With an end of the federal student loan repayment moratorium fast approaching, some in the financial space see technology playing a larger role when it comes to navigating the next steps in a convoluted process.

According to the Brookings Institution, 40 percent of student loan borrowers are expected to fall behind on repayments after the U.S. Department of Education lifts the repayment moratorium enacted in response to COVID-19.

Nearly 45 million Americans hold $1.7 trillion in student debt, and experts say many don’t understand the loans that were given to them or the refinancing options available.

U.S. News and World Report has noted the increased role financial technology companies are playing in helping Americans find competitive refinance rates, as well as providing guidance on how to go about repayment. Today, there are several fintech companies — such as LendKey, CommonBond, Gradifi, Payitoff and Credible — that offer online services and applications that compare refinancing and repayment options.

Payitoff CEO and founder Bobby Matson said more Americans are gravitating to these types of services, due in part to the “complexity of the system” and the need for clarity surrounding programs and loopholes that can reduce rates or eliminate monthly payments. The Payitoff platform integrates with other programs, such as banking apps, to highlight student loan refinancing options and restructuring plans for users who find the process too complicated to navigate.

Matson noted that one of the biggest factors contributing to the ongoing student debt crisis is “poor communication,” citing recent lawsuits where plaintiffs sued the Department of Education and others due to a lack of clarity about the mechanics of loans given to them.

“We’re talking billions of dollars, in aggregate, that borrowers are missing out on in terms of savings, like leveraging programs they’re already eligible for,” he said, adding that less than half of student loan borrowers were current on their repayments prior to the pandemic.

Matson believes tech solutions such as those found on his platform, which provides guidance on the “next best steps” for student loan repayment, could prove helpful in alleviating the student debt crisis in the years to come.

“It’s really focused on taking a complex problem and making it simple for the borrower because all the borrower wants is clarity, and software is good at bringing that,” he said.

Similarly, programs like the lending-as-a-service platform LendKey work to connect users with low-cost repayment options from community banks and credit unions, allowing them to compare rates online and find loans with repayment options that suit their needs.

“Millions of college students rely on private student loans each year to make up the tuition balance after they have exhausted grants, scholarships and federal loans,” LendKey CEO Vince Passione said in an email to Government Technology. “Student loan refinancing allows college graduates to consolidate and refinance their federal and private student loans into a new rate and term.”

Matson said fintech tools designed to help students navigate the repayment process should have existed for decades, considering the complexity of student loan stipulations and the economic impact student debt has on the financial mobility of millions of Americans.

“It’s really important that everybody who is interacting with borrowers pays attention and has an answer to them now so that they don’t have to default, because that could have ripple effects,” he said.

As millions of borrowers brace themselves for when federal policymakers lift the student debt moratorium, Matson said the need to provide tools to navigate repayments will likely increase.

He expects more users to make use of platforms like Payitoff in the months to come.

“The complexity is increasing quite a bit in this space, and now that payments are resuming, there’s a lot of questions about how you enter these programs,” he said. “We’re going to see this tidal wave of repayments where every borrower is going to be looking for an answer to, ‘How do I repay my student loans?’”
Brandon Paykamian is a staff writer for Government Technology. He has a bachelor's degree in journalism from East Tennessee State University and years of experience as a multimedia reporter, mainly focusing on public education and higher ed.