Student Loan Debt Is a Massive Challenge, but Innovators Are Paving New Paths to Solve It

First Republic Bank
November 1, 2019

Student loan debt affects people on a massive scale — 44 million Americans collectively carry $1.5 trillion in student loans. That includes everyone from students entering college to adults with graduate degrees to parents and grandparents who want to support younger family members.

Roughly 69% of college graduates borrow at least some amount of money to get through college, and this debt represents the second-largest type of consumer debt Americans carry.

Behind all these numbers are real people facing not just the financial hardship student loans can create, but an emotional and mental burden too. These issues manifest into a number of problems, from a lack of diversity in many professional industries to economic inequality to housing shortages.

That might sound dire, but there’s a silver lining here: In acknowledging the scale of the problem, an increasing number of individuals, companies and even college institutions are actively looking for solutions to improve the lives of people with student loan debt as well as better support and educate incoming students before they take out a single loan.

The heart of the student loan debt problem

Dealing with student loan debt is tricky because the burden of that debt isn’t evenly distributed.

Graduate students have a different problem: They carry 40% of all student loan debt. This group may understand that taking out large sums of money to cover pricey advanced degrees is a risk — but they do it anyway because of statistics that suggest they’ll earn more money.

Someone without a college degree makes around $35,000 per year. With a bachelor’s, that average rises to $58,000 per year. Someone holding a graduate degree earns, on average, $69,000 per year. 

It’s easy to see why people who want to advance in their career or increase their income feel that they don’t have a choice but to go back to school to earn a graduate degree — but they, too, could benefit from a better understanding of how to responsibly borrow, manage and repay the loans they need to get through grad school.

One thing most people have in common is a lack of financial savvy or literacy in general. College financing in particular can seem overwhelming and nuanced.

And that makes sense: There’s very little formal (or even informal) education about what a reasonable amount of debt looks like. Students and borrowers have few options available for getting outside help to determine an appropriate amount of debt for specific situations.

There’s also a massive lack of access to the data student loan borrowers need to understand all of their options for repayment or forgiveness. While there are literally hundreds of forgiveness or assistance programs available, federal loans are highly nuanced and complicated.

It’s difficult to find the right program should you need help. Even if you can identify the appropriate one for you, the process of enrolling — and proving you meet eligibility requirements on an annual basis — quickly becomes overwhelming and confusing.

Solutions to overcome the burden of student loan debt

Problems with student loans occur throughout the education system. It’s a struggle to figure out student loans before you even get to college, and there’s little support for understanding your loans once you’re in school. And after graduation? In the past, you’ve been on your own.

But that’s changing thanks to individuals and businesses who work to provide better education around personal finance in general — and student loans specifically.

“We use a combination of algorithms and support from real people to help families with the college application and selection process,” explains Sabrina Manville. She founded Edmit, a company that takes more of a proactive and preventative approach to educate students and families on the expected ROI and financials of higher education even before they choose a college.

“We want to help families understand what’s the right financial fit,” Manville says.

Edmit can help students figure out how much a particular college costs, which scholarships are available and what students can expect to earn with their degree after graduation — all with the goal of advising students and their families on what a responsible amount of student loan debt looks like.

Dr. Pam Eddinger of Bunker Hill Community College wants to see that kind of support and education continue for students even after they’ve made their initial decisions about college choice and financial aid.

She works to set up programs designed to help seniors develop repayment plans and understand how to manage their loans once they graduate. But Dr. Eddinger’s efforts don’t stop there.

“This work is not always about debt,” she explains. “We try and support students to get them to persist with their studies and get them through their coursework faster, so it’s cheaper for them to get the experience they need.”

Dr. Eddinger points out that completing their associate’s degree in two years versus four could mean saving tens of thousands of dollars — or avoiding that amount in debt. She also believes colleges should have more say in how much students should borrow to attend, to ensure they’re not borrowing more than they actually need to earn a degree at a particular institution.

Some startups are also working to make it easier to access the data needed to connect borrowers to programs that help with student loan repayment.

Payitoff is one of these tech-driven solutions. The company provides software to financial institutions so those banks and credit unions can in turn allow their clients to access it as a benefit of being with that bank.

Banks like ours strive to set good examples for the industry on how financial institutions can support clients by offering student loan refinancing options for difficult-to-manage or high-interest-rate student loans.1

One of the biggest opportunities for positive change: how companies can get involved

There are a lot of opportunities for private-sector businesses, like Payitoff, to step in and help solve the student loan debt problem. And they don’t have to do so simply out of the goodness of their hearts.

Companies that work to implement benefits and solutions that can ease the burden of student loans for their employees can pick up a new, useful tool to attract and retain top talent. It’s already standard practice for companies to pay to train employees and invest company assets in that training.

Employers generally offer financial support for a coding or marketing class if it improves the worker’s skill set. Why not offer to help your employees who had to take out thousands of dollars in debt to earn the degree and education you required they have before you hired them? If employers acknowledge there’s value in employees having a higher education degree, why wouldn’t they offer support to help them pay for it?

A big opportunity exists for companies to recruit top talent by being responsive to what those high-performing employees care about — and there’s no bigger challenge facing millennials today than student loan debt.

Smart companies can work with their teams to resolve the issue, and Gradifi2 is one great example of how. Through the platform, companies can provide a student loan repayment benefit to their employees. First Republic does this by making monthly contributions between $100 and $300 to employees’ student loan repayment.

Companies that do this benefit because it helps them attract, hire and keep the best employees who feel appreciated and supported in their educational investment. That, in turn, helps boosts the satisfaction, productivity and retention of our teams.

It will take more and more of these efforts to truly solve the student loan problem. The good news is that, as these companies and innovators show, there is a space and an opportunity for creative solutions to enter the picture. Accelerators like MassChallenge are also making it easier for entrepreneurs to develop and scale new solutions in this space. Edmit, for one, was a member of the inaugural cohort of MassChallenge FinTech in 2018.

Both startups and established institutions, businesses and the colleges themselves can all do their part to solve this problem and alleviate the burden that student debt places on new grads, established workers, and multiple generations within families.

1. Terms and conditions apply. The terms of this loan may differ from your current loan(s). For example, this loan does not contain special features such as forbearance periods or income-based repayment plans available for some student loans. This loan may not be dischargeable in bankruptcy. This product is not available in all markets. For a complete list of locations, visit firstrepublic.com/locations. This is not a commitment to lend or extend credit. Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you.

2. Gradifi, Inc., is a wholly owned subsidiary of First Republic Bank.

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