The student loan sector has predominantly been off-limits to many financial institutions, despite being a multi-billion-dollar industry. In fact, most borrowers could only tap into a few lenders when looking for educational funding, even though 30-40% of undergraduates need a student loan product each year.
But the marketplace is now shifting as innovators are making it possible for non-banks and even fintech players to get into student lending and even student loan refi’s, driving greater access for all sorts of financing organizations to offer and facilitate these types of loans.
Moreover, barriers to entry are starting to be mitigated creating open doors in the marketplace, especially with new plug-and-play technologies now making it easier for fintechs and non-banks to jump into student lending. Third-party providers are even delivering a full suite of support and resources to help organizations stay compliant while offering these types of loans, making the process less complicated.
Sara Parrish, President of CampusDoor, understands the difficulties and the benefits of moving into the student loan sector. She goes on to say, “It takes a big investment to develop the level of expertise needed to make a splash in this asset class, but organizations like ours exist to empower lenders of all types and sizes to make the leap into student lending in a more cost-effective way. It’s our job to take care of the hard stuff so lenders can focus on acquiring customers for life.”
Tapping into a new asset class can be a tough decision for any lender looking to pivot from their traditional offerings. For student loans, the entry costs can be steep. There are third-party integrations to build, compliance hurdles to cross, and a tough regulatory environment to navigate.
“That’s why choosing a reputable provider, like CampusDoor, enables fintechs to expand their offerings with confidence and certainty around costs, risks, and ability to execute seamlessly,” shared Parrish.
In fact, as one of the largest third-party student and specialty loan organizations, CampusDoor offers a Student Loan in a Box service that delivers a unique plug-and-play technology system that enables service providers to meet the student loan needs of their customers, while staying compliant and without them needing to hold these assets on their books. This means that independent banks, credit unions, fintech firms, and even startups can now be a part of this sector. This can be very advantageous since many lenders are still facing challenges with their traditional mortgage loans or mortgage refi products.
Fintechs Can Experience Benefits By Offering Student Loans
Furthermore, fintechs can experience many benefits by offering student loans, such as:
Expanding student loan options: The student loan market is huge, and it is clear that more options are in demand in this sector. Fintechs can be a solution to meeting the need by broadening access to student loans for those seeking a college education.
Improved customer relationships: Student loans are a great opportunity for fintechs to build relationships with younger GenZ consumers. When providing a positive experience, fintechs are perfectly positioned to retain these customers as they have more financial needs later in life, such as mortgages.
Increasing revenue: There is no denying that current economic conditions are making it harder for businesses of all types to survive. But offering alternative loan products can give fintechs a stable revenue stream, which may offset losses in other financial sectors.
While the current business climate is challenging, there are a number of alternative solutions for fintechs to explore in order to stay afloat. Private student lending may offer a way for non-traditional lenders, such as fintechs, to fill a market gap and meet demand. This arrangement is a win-win, especially while the mortgage industry remains turbulent. Both fintechs and customers benefit from operating in student lending. And it can also be a great business strategy for fintechs to not only grow and expand their service offerings, but also to grow and nurture relationships with new lending customers who may rely on them for years to come.