Fintech may be a portmanteau combining the words “financial” and “technology”, but this trendy example of jargon has an influence that belies its twee name. Representing a surge of data-driven startups changing the way Americans manage their money, fintech is disrupting not only Wall Street but college campuses all over the country. In between new back-end processes streamlining course registration and class syllabi devoted to Bitcoin and other cryptocurrencies, fintech may offer students a way to cope with rising costs in education.
These costs have never been higher
It’s no secret that a college diploma comes with an expensive price tag. Students currently enrolled in post-secondary organizations recognize they’re spending more on their education than their parents did decades before them. This isn’t a surprise. After all, almost every good and service is more expensive now than it was just five years ago thanks to inflation; it only makes sense that tuition costs rose accordingly.
However, the College Board’s latest Trends in College Pricing 2017 report reveals this discrepancy is larger than most realize — and the gap is widening each year. The study analyzed the cost of tuition rates over time, between the 1987-1988 and 2017-2018 school years. It shows that, as student enrollment rose between 5–6 percent, the cost of tuition grew during this period by over 100 percent.
Kelli B. Grant, a Personal Finance and Consumer Spending Reporter, crunched the numbers to gain a better perspective on this trend. A grad of ’88 would have spent just over $17,000 on tuition for their final year at Harvard compared to today’s $44,900. Though incidental fees and other expenses vary from campus to campus, students at Harvard can expect to spend as much as $67,580 for tuition, room, board, and fees combined without financial aid.
Financial aid takes some burden off the students
At Harvard, roughly 70 percent of students receive some form of need-based aid or financing plans, with the average grant amounting to more than $53,000. Students can use the net price calculator to see how much they would be expected to pay for a year at Harvard according to their family’s income. For those making below $65,000, its financial aid program requires no contribution towards tuition.
Students are still graduating with debt
Though many students qualify for bursaries, grants, and other forms of financial assistance, debt is still a reality for most pursuing a post-secondary education. As of February 2018, 44 million Americans owe a collective $1.3 trillion in student debt, while the average graduate leaves campus with roughly $37,000 in student loans.
According to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households, the average monthly payment on these loans is $393. However, 38 percent of respondents have outstanding student debt currently in deferment, while the student loan delinquency rate rests at 11.2 percent.
Fintech could help level the playing field
With over $1 trillion in outstanding debt, students represent a struggling demographic in need of financial help. Fintech companies seek to address the issues these students face by democratizing access to financial information previously unavailable to them.
Last year, venture capitalists sunk $17.4 billion into fintech — nearly seven times what it raised in 2013. This funding has gone into customer-facing mobile technologies leveraging banking infrastructure in favor of those usually left on the margins of the financial world — like students.
Fintech improves financial literacy
As the generational student debt gap widens, so does the gap in financial knowledge. According to the U.S. Banks 2015 Students and Personal Finance Study, 65 percent of students received a “C” grade or below for how well they managed their money. This lack of financial literacy leaves them ill-prepared for the financial realities of their education. Without an understanding of inflation, compound interest, and risk diversification, they may choose the wrong financial solution for their situation.
Fintech may help bridge that gap, with alternative services that provide financial information and help manage student debt. These resources include the savings guides and budgeting tips compiled by the financial experts at MoneyKey. They tailor advice for those on tight budgets, so the information they share is practical for students and those who rely on payday loans to make do. In offering an online resource center, these experts have moved financial education out of a bank advisor’s office and onto the screen. Students can scroll through advice from their phone or laptop at a time that’s convenient for them for free.
Other resources, like Gradible, guide students through specific topics like student loan options, consolidating and refinancing student loans, and even deferment and forbearance. It’s also a free online platform that can accelerate repayments on student loans by paying its users for completing certain online tasks, such as writing, taking surveys, or conducting Internet research.
Fintech provides a rich counterpoint to the ongoing student loan debt crisis in the country. As the industry flourishes into a lush ecosystem of innovative mobile services, the role technology plays in student-based finances will evolve. Today, fintech can help students improve financial literacy and manage their funds. Tomorrow, fintech could give students even greater agency over their finances.
Economists forecast fintech will reach a transaction value of $2,151,229m with 291.3m users by 2020. Though representing a small niche within this innovative sector, companies identifying solutions for students will have access to a greater chunk of the financial pie. How they use this revenue still remains to be seen, but they’ll most likely continue helping the underserved population of students and recent graduates in greater ways.