The burden of student loan debt puts borrowers in between a rock and a hard place, forcing them to choose between loan payments and homeownership or even vacations. While some may argue that a college education is optional, The Georgetown Center on Education and the Workforce estimates that 65 percent of all jobs in the American Economy will require postsecondary education by the year 2020.
As student loan debt levels continue to rise in the U.S., it’s important for lenders to come up with innovative loan solutions that help the borrower pay off existing debt. In doing so, consumers may expand relationships with financial institutions they trust—whether getting a mortgage or investing through a financial advisor.
What is a Student Loan?
A student loan entails borrowing money for the purpose of pursuing higher education. Often, student loans are offered as part of a financial aid package from a college or university. They can come from the federal government or private sources such as a bank or financial institution.
Federal student loans feature fixed interest rates, which are much lower than a credit card. This type of loan does not have to be repaid until after students leave college and it offers various methods for repaying the balance and interest. Under the umbrella of federal student loans, students may be offered Direct Subsidized Loans, where the government pays the interest while the borrower is in school and during deferment. Unsubsidized federal student loans require the borrower to pay any interest that accrues during school and afterwards.
Students can also rely on financial institutions to get a loan to pay for their education. Student loans from banks vary in terms of requirements to qualify, as well as policies for repayment and interest rates.
How Does Student Loan Debt Impact Future Spending?
The traditional college student, who graduates around the age of 21, will likely make an average annual salary of around $30,000 if they are working full-time, according to data from the Bureau of Labor Statistics. While the average monthly payment on a student loan is nearly $400. The impact of this depleted income—which typically spans 10 years of repayment—is tough to completely measure. Certainly, it inhibits a graduate’s ability to spend on non-essentials like going to the movies or traveling. It can also prevent people with loan debt from saving money and increase credit card debt to cover emergency expenses. As of the first quarter of 2018, 10.7 percent of student loan debt is in delinquency or in default, which means that many people can’t make payments all together.
The clearest example of the impact of student loan debt remains in the housing market. Students loans typically hit a borrower earlier in life when they have a lower income, so they can’t pay off the debt quickly. The debt not only limits an individual’s spending power for a home or even everyday items, but it also makes people hesitant to borrow money in the future to purchase homes.
Interestingly enough, 72 percent of millennials, born between 1978 and 1995, consider being able to own a home a “top priority”—more than traveling, getting married, or having children—according to a study from Bank of America. The same report indicated that most consumers have not purchased a home because of their financial stability. Forty-four percent said they did not have enough money saved for a down payment while 23 percent said they can’t afford the home they want, and 20 percent can’t afford the location they want. Ten percent indicated that student loan debt was preventing them from purchasing a home. A 2017 study by the National Association of Realtors (NAR) and American Student Assistance found that student debt delays millennial homeownership for seven years.
Banks and financial institutions have an incredible opportunity to become trusted allies for people managing student loan debt, helping them achieve their financial goals including home ownership.
Innovative Student Loan Solutions with Envestnet | Yodlee
Financial institutions are less trusted by the millennial demographic compared to older generations like Baby Boomers, and millennials have a lot of student loan debt. People with existing debt that they do not have under control are unlikely to take on more debt. Student loan data can empower customers and create a relationship where banks are a trusted advisor for future financial opportunities.
With Envestnet | Yodlee’s Platform APIs enhancements, banks and financial institutions can easily address student loan issues, making student debt more manageable, whether it’s debt management, repayment, or refinancing.
How to Use Envestnet | Yodlee’s Platform APIs for Student Loan Data
44.2 million consumers carry the burden of student loan debt. As financial institutions look for ways to help consumers manage their student loan debt, the Envestnet |Yodlee Platform API enhancements provide aggregated and verified data as the foundation for repayment assistance and long-term financial health. Envestnet | Yodlee’s Platform API enhancements offer the following capabilities through the analysis of student loan data:
Payment Enablement
Envestnet | Yodlee’s financial data API provides the ability for quick and streamlined payments for student loans, whether for refinance purposes or for making monthly payments.
Borrower Verification
Through Envestnet | Yodlee’s Account Verification API, lenders can confirm key student loan details such as total amount, interest rate, terms, and last payment. Our tools can also confirm the borrower’s name, if the borrower is active, and whether or not they have access to the account.
Debt Management
By providing student loan data to consumers, financial institutions allow them to get a comprehensive understanding of their financial health. This can lead to a better understanding of their ability to take on more debt for things like purchasing a home.
Real-Time Payment Notifications
Lenders can help consumers stay on track to repay their debt with PFM notifications that help the borrower remember the payment amount and due date.
Optimized Employer Contribution
Employers can help new graduates pay off their student loans by offering a matching program using student loan data to confirm monthly payments and apply employer contributions to the account.
