Biden Student Loan Relief: The Fintech Effect

Lenders feel relief, too

President Biden’s long-awaited student loan package is expected to help millions of student borrowers reduce their debt. It could also have a major impact on the student loan industry. With repayments set to resume in 2023, borrowers now have an incentive to refinance their loans, which could help lenders like SoFi. SoFi shares rose 4.5% Wednesday on the news.

There is still a lot of debt left to deal with. The package includes cancellation of $10,000 for people making less than $125,000 per year, with an additional $10,000 possible for those who received Pell Grants.

• Also included is a significant new program that will enable borrowers who are unable to repay loans to pay a maximum of 5% of their income.
• The administration extended the student loan repayment pause until the end of the year, a feature that began in the early part of the COVID-19 pandemic in March 2020 under President Donald Trump and has since been extended several times.
• Borrowers have been waiting to see how much of their debt will be written off and also when they will have to continue making payments. Now that these borrowers know how much it is and whether they qualify, some of them are more likely to refinance now, said Will Sealy, CEO of startup Summer, which helps students manage their student loans.

Resuming payments can be challenging for some. Many younger borrowers got into the habit of defaulting, said Harrison Hochman, CEO of Sparrow, which helps borrowers choose private student loans and refinances. “Of all the age groups of borrowers we support, they are the most anxious about resuming payments.”

• The repeated pauses in repayment have left the loan industry in a holding pattern, with federal loan servicers such as Navient, FedLoan and Granite State, as well as other lenders, pulling out of the business. “In response to the uncertainty, many companies left the student loan industry,” Hochman said, noting that a number of startups are trying to fill this void.
• It remains unclear whether Biden will resume the repayments in early 2023. The issue has become a “bipartisan political Wiffle ball,” and neither party wants to end the hiatus, Hochman said.

Even the cancellation could be an opportunity for the technology to shine. Borrowers must apply for debt relief and show proof of income, which can present complications or delays for some. The White House says the application process will be available before the end of the year. Fintech companies can help by streamlining the application process. “What we’re doing with student loans is what TurboTax and H&R Block and all these tax companies have done,” said Tony Aguilar, CEO of Chipper, which helps borrowers repay their student loans.

– Tomio Geron (e-mail | twitter)

A version of this story first appeared on Protocol.com. Read it here.

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