Banks mo­bi­lized to help col­lege kids man­age stu­dent loans

The Pak Banker - - BUSINESS -

Amid an ex­plo­sion of stu­dent-loan debt, pri­vate lenders, credit-rat­ing agen­cies, and non­prof­its have be­gun of­fer­ing con­sumer-friendly op­por­tu­ni­ties for stu­dents to take the fi­nan­cial anx­i­ety out of bor­row­ing for col­lege.

Fi­nanc­ing a col­lege ed­u­ca­tion in Amer­ica has long been a catch-22. To get the in­come-en­hanc­ing ben­e­fits of a col­lege de­gree, many un­der­grads sad­dle them­selves with stu­dent loans that promptly eat into their earn­ings af­ter they grad­u­ate.That dilemma has only wors­ened in the past 15 years, as the av­er­age col­lege tu­ition has in­creased by nearly 500 per­cent.

In that time, stu­dent debt has passed mort­gages and car loans as the largest cat­e­gory of out­stand­ing debt. Ac­cord­ing to stu­dent len­der Sal­lie Mae, the av­er­age stu­dent bor­rower now owes $23,300, with 10 per­cent of the coun­try's un­der­grad­u­ates on the hook for over $54,000.To make mat­ters worse, a tight credit mar­ket which has made lenders less ready to grant loans and more prone to pounce when new grad­u­ates fum­ble their early pay­ments.

One fre­quent ob­sta­cle to get­ting a col­lege loan is the stu­dent's lack of credit history. In 2006, the credit-rat­ing agency Ex­pe­rian (EXPGY) de­vised Van­tageS­core that em­pha­sizes bor­row­ers' re­cent fi­nan­cial ac­tiv­ity. By look­ing at Van­tageS­core, which can tease out a track record out of as lit­tle as a month's worth of be­hav­ior data, lenders can get a bet­ter idea of what to ex­pect from "thin file" con­sumers like stu­dents. But for many stu­dents, get­ting the loan is only half the bat­tle. Man­ag­ing their debt is where the trou­ble be­gins. "We're teach­ing stu­dents how to dis­sect frogs, but not how to bal­ance their check­books," says Max­ine Sweet, Ex­pe­rian's vice pres­i­dent for public ed­u­ca­tion.

To help stu­dent bor­row­ers learn the rudi­ments of per­sonal fi­nance, Ex­pe­rian has part­nered with Con­sumer Ac­tion, the Jump$tart Coali­tion and other non­prof­its to help stu­dents man­age their loans. Wells Fargo (WFC), a ma­jor pri­vate holder of stu­dent debt, also of­fers ba­sic fi­nan­cial ed­u­ca­tion as a kind of in­sur­ance pol­icy on the loans they grant.

"We want our cus­tomers to be suc­cess­ful fi­nan­cially across the board," says Wells Fargo's Bon­nie Wal­lace. "We're pro­tect­ing our share­hold­ers and un­der­writ­ers, but we're pro­tect­ing our cus­tomers as well."

The bank's coun­sel­ing ex­tends to urg­ing fam­i­lies to pur­sue low-cost, fed­eral op­tions, like Stafford loans, be­fore fill­ing the need gap with pricy pri­vate loans. (Read More: Re­port De­tails Woes of Stu­dent Loan Debt)

Wells also of­fers in­cen­tives that trim stu­dents' debt while teach­ing good fis­cal habits. Stu­dents get ba­sis-point re­duc­tions for grad­u­at­ing, and for mak­ing their pay­ments con­sis­tently. The bank en­cour­ages its bor­row­ers to open a Wells check­ing ac­count and set up au­to­matic pay­ments on the loan, which, says Wal­lace, "sig­nif­i­cantly in­creases your suc­cess with your loans."

Sal­lie Mae of­fers sim­i­lar in-school pay­ment pro­grams on the Smart Op­tion stu­dent loan, un­der which pay­ing at least $25 per month can re­duce the in­ter­est rate by be­tween 0.5 and 1.0 per­cent. In May, the com­pany es­ti­mated that 63 per­cent of its Smart Loan cus­tomers take ad­van­tage of this pol­icy, sav­ing any­where from $3,700 to $5,300 per $10,000 of debt.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.