Today we are talking about student loans. The $1.7 trillion student debt burden is causing real changes in the behavior of Gen Z and Millennials. It is a huge problem and it needs big ideas to bring about solutions that can scale. Every student loan holder needs to know all their options and how best they can save money. And in many ways, the best place to provide this help is a local bank or credit union.
My guests on the Fintech One-on-One Podcast are Laurel Taylor, the CEO and founder of FutureFuel.io and Sunil Sachdev, the Head of Fintech at Fiserv. These two companies have partnered to tackle the student debt problem, by bringing tools, awareness, and scale in this unique partnership. [Editor’s Note: this conversation was recorded on March 31, 2022 and on April 6 we learned that the student loan moratorium has been extended to August 31.]
In this podcast you will learn:
- How Laurel’s personal experience with student loan debt led to the founding of FutureFuel.io.
- Why Fiserv created a fintech group.
- The impact of the huge student debt burden we have as a nation.
- Details of the survey they did across the customers of 266 banks.
- Why it is important for Fiserv to tackle student loan debt.
- How FutureFuel.io helps unlock student loan savings.
- Why banks and credit unions should be proactive with student lending.
- Why Fiserv decided to partner with FutureFuel.io rather than building something themselves.
- What will happen when the student loan moratorium ends.
- An example of the approach of one of the banks they work with.
- How Fiserv can work with banks to determine who exactly can benefit the most here.
- What success looks like here for Fiserv and FutureFuel.io.
- What it is going to take to drive down total student debt.
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Welcome to the Fintech One-on-One Podcast, Episode No. 354. This is your host, Peter Renton, Chairman and Co-Founder of LendIt Fintech.
Before we get started, I want to talk about the 10th Annual LendIt Fintech USA event. We are so excited to be back in the financial capital of the world, New York City, in person, on May 25th and 26th. It feels like fintech is on fire right now with so much change happening and we’ll be distilling all that for you at New York’s biggest fintech event of the year. We have our best line-up of keynote speakers ever with leaders from many of the most successful fintechs and incumbent banks. This is shaping up to be our biggest event ever as sponsorship support is off the charts. You know, you need to be there so find out more and register at lendit.com.
Peter Renton: Today on the show, we are doing something a little bit different. We are talking about student debt and we have two people here to discuss this. We have Laurel Taylor who is the CEO and Founder of FutureFuel who exists to crush student debt, as they say it right there on their home page and then we have Sunil Sachdev who is the Head of Fintech at Fiserv. I’m sure everyone would know who Fiserv is, one of the leading fintechs core banking providers, but they are partnering together to really offer this really all-encompassing student debt solution for banks and credit unions and we delve into exactly what that means.
We talk about why Fiserv decided to go and partner with FutureFuel, we talk about what the impact of this partnership could be, how it works, what are some of the examples of some of the banks that are actually getting onboard here and much more. It really was a fascinating interview, hope you enjoy the show.
Welcome to the podcast, Laurel and Sunil!
Sunil Sachdev: Hey, Peter, good to be here.
Laurel Taylor: Thank you, Peter, great to see you all.
Peter: My pleasure. So, let’s get started just by giving the listeners some background. Laurel, start with you, give us some of the highlights on your background.
Laurel: So, I’m the Founder and CEO of FutureFuel.io, thrilled to be here, thrilled to have the largest fintech in the world as Sunil here, a global leader in payments as our customer, you know, every founder’s dream to have an opportunity to have this conversation together. My path and purpose I think is an individual and also as a Founder is to unlock student debt savings and unblock savings as a result of that. So, I have had about $200,000 in student debt between my Mom and I who was a social worker and helped me go to undergraduate by taking on a Parent Plus loan and as we, as a family, navigated financing, college financing as well as managing and paying down student debt, I really couldn’t believe, as a product and technology executive and operator, how terrible that experience was, really archaic.
I think the recommendation today issued by FSA on a day that they gave public testimony was to contact servicers via fax machine if there is a desire to get into a federal income-driven plan involvement. So, it’s 2022, seven out of ten who graduate with student debt have never even seen a fax machine, don’t know what it is and so I really founded FutureFuel with the vision of digitizing the experience of managing and paying down student debt to unlock savings and empower users to go beyond student debt into savings more broadly and to meet users, where they work, where they bank and where they experience financial services. And, of course, I’m thrilled today to talk about how we’re doing that with Sunil.
Peter: Okay. Sunil, before we get into that, why don’t you give us some of the background on yourself and what you do at Fiserv?
Sunil: Sunil Sachdev, Head of the Fintech Group here at Fiserv. It’s an organization that was created about six months ago to work with founders like Laurel to enable greater access to innovation and technology platforms for our financial institutions, credit unions and other partners so they can continue to provide the best-in-class capabilities to their last-mile customers. We think the partnership with FutureFuel is symbolic of what we’re trying to do more broadly in the marketplace which is work with our financial institutions and increase the tent of participation by bringing in fintechs that will allow them to deliver more comprehensive user journeys, more relevant user journeys based on data science so that they could help their customers save a little bit more, pay down debt and just increase their financial wellness all around.
Peter: Okay. So, let’s just dig right into student debt, if we could, maybe Laurel I’ll start with you and talking about the impact. There’s a massive problem, I don’t know what the number is now, $1.7 Trillion or something in total student loan debt, what’s the impact of this massive student debt loan?
Laurel: The number one impact of the student debt loan is a lack of savings and a lack of savings more broadly in terms of any sort of wealth accumulation or any wealth accumulating life event. And so, when we look at the data, we see that 81% of those with student debt do experience significant delays in home ownership, in when they are able to save, when they are able to marry, when they are able to contribute to retirement savings.
The MIT H-Lab produced a study of that surface that 84% of those who do not participate in retirement savings at all or do so later in life that student debt was the number one cited reason or cause for that delay. And so, we, in partnership, with Sunil really are meetings users where they are, where there is this massive, unmet market need of equipping consumers through Fiserv’s retail mobile banking experience to assess, better understand how to manage and how to pay down their student debt.
For some, that’s lowering their monthly payment, particularly as we come into the end of the moratorium for two and a half years, for some consumers and borrowers, 92% of student loan holders have not had to pay their student loans so all of a sudden, we’re going have this major financial crisis from a consumer perspective. We’ve got to find an average of just about $400 a month that they’ve already re-directed in other areas. So, one more note on that is Sunil was talking about data and leveraging data science, I think we’re approaching this in a fairly sophisticated way with Sunil and with Fiserv, based on the access to data that Fiserve has. So, Sunil, is it okay if I share a little bit more about the analysis that we did?
Sunil: Sure, Laurel, please.
Laurel: Awesome. When we first started working together I think the natural question is do consumers that Fiserv’s network of 3,500 banks, community banks and credit unions, do those consumers have student debt. What we know is that student debt is age and wage agnostic. Credit unions, in particular, their demographic tents skewed but more seasoned and so the question is, did they have student debt? We analyzed a cross section of banks, about 266 banks, and anonymized data, anonymized data set and we looked for markers in the data to indicate explicitly payments to student loan servicers and what we found was $13.7 Billion of student loan payments made over the last four years that was during the moratorium where about 50% of users were not making payments.
In terms of impact, when we apply the capabilities that we have built as an embedded financial technology platform that surfaces micro actions and transactions to transform outcomes, we could have saved that same cohort $2.5 Billion so unlocking $2.5 Billion of student debt savings that consumer can tuck those away for a rainy day. They can invest with their bank, they can move into, could graduate the way in which they are managing their finances more broadly.
Peter: Right. I want to dig into that in a little bit, but before I do, I want to turn to Sunil. You know, Fiserv, obviously, very well-known company, as Laurel said, arguably the largest fintech in the world, why is it important for Fiserv to really address student loan debt?
Sunil: So, I think for us, we were attracted to this use case because after speaking to hundreds, thousands of financial institutions we recognize that there is kind of a macro struggle to break through the noise in the marketplace for these financial institutions to attract the next generation of customers. If you look at the average age of customers in a lot of traditional financial institutions, they skew baby boomer and traditionalist and given the great wealth transfer that’s occurring over the next decade for a lot of that generational wealth is going to be passed to the younger generation, we wanted to make sure for these balance sheets and these community institutions to stay relevant that they need to continue to attract that next generation of customers.
So, student debt is one use case that spoke to the ability of financial institutions to be able to engage that next generation of customer and be able to provide them relevant services and capabilities that they would not normally equate with getting from a traditional financial institution. So, by bringing that together, we, as Fiserv, are now trying to enable greater capabilities in our technology stack that allow those institutions to serve that next generation.
Peter: Right, right, got it, got it, okay. So, Laurel, tell me how this works? You mentioned this $2.5 Billion you could have saved, tell me how?
Laurel: One, I think it’s important to emphasize that we are B2B2C. So, we are embedded within the Fiserv core banking stack as well as within the mobile first retail banking experience. There are four jobs to be done, in terms of how we deliver on that promise to unlock student debt savings. One is to help families plan, so we understand at FutureFuel that going to school is going to be one of the largest investments that a family can make and it really needs to be planned for just like any other event in one’s financial life. So, first is to plan and help guide users into making smart, practical and informed decisions like investing in 529 plans.
Two is funding so we have also created an embedded lending marketplace with curating trusted lending partners to offer the lowest cost of capital to fund access to education. Repay is really the core of our offering and what we first started with when founding the firm in 2016. And so, we, through repayment capabilities, were guiding families and users towards the most effective debt repayment strategies for their own situation and that’s based on goals and financial health and wellness context so that includes reducing monthly payments and includes accelerating through extra payments to even potentially refinancing for those who would benefit from refinancing.
And then, finally, it’s really enabling families and users to build and build based on the next best action of…in the context student debt does not happen in isolation, student debt typically lives within broader consumer debt and hopefully, investments as well. And so, you want to think about it as optimizing on the liability side of the balance sheet as we unlock an average of $326 a month in student debt savings really helping that user understand okay, how do we actually think about the debt they have more broadly and then actually building wellness and wealth. So, planning, funding, repaying and building.
Peter: Got you, got you, okay. So then, Sunil, I’m curious about, you know, obviously Fiserv works with some 3,500 banks and financial institutions and it’s really been fintechs that has taken the lead here, you know, obviously, when SoFi was sort of the pioneer, shall we say, ten years ago in really giving students an option to refinance some of their debt. Things have obviously grown a lot since then, but you still see fintechs are really taking the lead here. Why should banks get involved, I mean, we obviously have seen some banks, I’d say, take a productive approach, but, you know, why should more banks be really taking on student debt and really getting involved in their customers’ student loans?
Sunil: A lot of the financial institutions that we serve, whether credit union or community institution, they really are and have been for generations aligned with the mission that serves the broader community at large, right, that’s the great thing about community banking in the United States. When you think about the millions of people, I think Laurel mentioned 47 million+ people that are impacted by student debt, there is no one fintech that can serve all of the needs of that segment or that addressable market and a lot of those people already have bank accounts or member accounts with financial institutions that we support.
So, by helping unlock the ability for those institutions to serve that segment of the market specifically with tools that Laurel and FutureFuel provide, we feel that we are kind of helping them align with their broader mission to serve the community, to help folks that are carrying this huge weight of student debt around, kind of help them lighten the load, help them be able to participate more in kind of all of the different financial milestones that they should be experiencing if it wasn’t for student debt.
Sunil: So, I think for us it’s a bit about technology and innovation helping our financial institutions stay relevant, but it’s lso ensuring that it’s kind of mission-oriented and that it’s an opportunity to help the broader community.
Peter: Right. But why didn’t you go and do this yourself? You’ve obvioulsy got massive IT capabilities inside Fiserv, why partner with a fintech startup, why not just do it yourself?
Sunil: Well, because I think what FutureFuel brings to the table is a set of subject matter expertise that would be hard for Fiserv to replicate. They’re a company that’s grounded in data science, they know the business of student debt inside and out, they know what needs to be done to help folks with different types of student debt today and how to get them on that path to financial wellness.
So, we felt that our mission here is to basically amplify FutureFuel’s message and capability to the segment that we already serve and we felt that by doing that we’d be able to get to market faster, we’d be able to deliver a powerful solution and do that in collaboration. We are working with FutureFuel, as Laurel mentioned, to ensure that the digital experience, the back-end experience, everything is there in terms of the raw data that FutureFuel platform needs to then create these smart capabilities to help, you know, folks with student debt.
Peter: Right, right, okay. So, we’re recording this on the last day of March and, you know, we know you mentioned it already, that the student loan repayment moratorium it’s been extended many times, who knows, it may be extended again, we don’t know that for a fact. Assuming it’s I think in May it’s supposed to end and maybe actually we take a step back and Laurel just talked about, what has been the behavior you’ve seen with the people with student debt over the last couple of years? You mentioned the financial crisis, can you just dig into what’s going to happen when the moratorium ends.
Laurel: Unfortunately, it’s quite predictable what will happen when the moratorium ends, whether that’s May 1st or December 31st and I’m just sharing December 31st and really as a proxy that I have a strong conviction the moratorium will end this year and it will be the largest upheaval in consumer debt in the history of the US. This is one of the reasons why the partnership with Sunil and his organization is so important because when you think about consumers moving through a financial crisis and I’m not saying that to be dramatic, you know, over 60% of borrowers are not prepared to enter into repayment.
Unfortunately, they are not aware of fantastic programs that have been made available by the Federal government, federal income-driven repayment plans, public service loan forgiveness so they would look to, we would hope, they’re going to look to those that are already experiencing, they already have a relationship with, it’s trusted partners who are going to look to their banks and banks have this hero moment and this opportunity to help users discover, select and enroll in repayment strategies that they can afford to avoid delinquency and default.
They can do that in six minutes, the average user in six minutes discovers, selects and enrolls in Federal income-driven repayment programs which can actually bring repayment all the way down to zero or commensurate with income. I think what is going to happen is that the confusion will remain true, there’s a tremendous amount of confusion that student loan holders have today, is the moratorium ending, is it not ending, it has been extended multiple times. What we see on platform is really interesting, we see our users spend quite a bit of time better understanding one, just the fundamentals of what is going on, what’s happening with their interest rates, what’s happening with the moratorium.
We have seen since March of 2020 a dramatic increase in the use of our payments capabilities so we have gamified the wallet based on techniques like Round Up and Auto Crash which helps users based on surplus in wallet direct extra payments to pay down debt, our Chrome Extension, very similar to Honey to direct merchant dollars in cashback to pay down student debt. We’ve seen a dramatic increase in the utilization of those payments capabilities because those who can pay are paying because 100% is applied to principal right now. It’s actually been a terrific opportunity for those who can accelerate the pay down of their debt. To do so, $25 of extra payments a month actually equates to 23 months and $4,900 off a debt, but when 100% of that is applied to principal it’s almost double.
What we also see, which is interesting, is we think about the comfort of consumers that Sunil’s customers are serving. We offer coaching and we have seen the highest utilization of our coaching where we do not provide advice, but we surface insights and actions based on their goals and the metadata on their debt, in terms of the next best action. The average user is 37, they make $92,000 a year as an individual, not as a household income but as an individual, and they have $103,000 of student debt so high debt to income ratio, but 37-year-olds with, you know, six figures of income, very attractive.
These are the kinds of customers that banks want to serve and actually one of the banks that we’re working very closely with, Milford Bank, under Sunil and Jorge’s leadership, of course, alongside Sunil and his team. We are focused on two different strategies around this moratorium, one is engaging and really outreaching. Sunil talked about the data that they have within the core, with permission from all stakeholders, we are looking at and kind of segmenting which customers we can and should reach out to to make them available that Milford Bank can actually be there in this moment that matters and help them prepare for the end of the moratorium and bring them through the experience through Milford’s banking experience where we’re embedded.
And then two is actually driving a growth campaign so the first is engaging the customers who’ve already worked so hard to attract and retain and they want to defend, protect and, again, retain those customers through digital innovation that delivers tremendous value. And then two is actually helping Milford acquire a younger demographic of user that Sunil has spoken to because, again, student debt is the first financial life event. So, we have this opportunity to help borrowers with tools during this period of uncertainty to kind of get them back on to this road to repayment.
Peter: Right. And it seems to me that …I mean, you mentioned it there, Laurel, but awareness is the most important thing because I imagine there’s probably millions of student loan holders who just think oh well, I’ve got this debt, it’s a loan just like a car loan and you just got to deal with it. Is that one of the goals of this partnership is to raise awareness, Sunil?
Sunil: Yes, Peter. I think one of the things that we’re actively working on with our 3,500+ financial institutions is to constantly share these types of capabilities and innovations on a regular basis and by bringing these messages in and getting our advisory council exposed to what FutureFuel’s doing and what their mission statement is then we’re able to take that information and package it in a way where those financial institutions can share that with the last-mile customers.
A lot of that has to, you know, not just talk to them about potentially participating in the platform, but also on the why and also identifying upfront, and Laurel’s team has been great at this, we’re able to talk to financial institutions today and basically say hey, if you allow us an opportunity to look into your core we can identify proactively the number of folks that we can positively impact from a financial well-being perspective.
Peter: Right. I’m just worried that, is there like a positive selection bias here, like people who respond to those who actually are really interested. I’m just wondering how you get the people who are just kind of lazy (Laurel laughs) or have their head in the sand because I just don’t want to deal with it, I see student loan, I don’t want to deal with it because we certainly know those people exist, how do you break through that?
Lauren: What we see in the data, and I previously led a global business unit at Google, and so it has that kind of obsess over user engagement. I think Sunil spoke a little bit about driving engagement. What we see is that when users are presented with our value prop of student debt savings we see between 42 to 68% of users engage, these are the most aggressive numbers I’ve seen in my career and I think that is primarily because….that was pre-COVID and that’s maintained consistent through COVID, there is so much confusion. However, when you have to pay an average of, you know, just shy of $400 a month, I think the big difference here is we think about financial services and how we think about engaging in most financial services that could benefit us in the future.
We want to make the best decisions we can today so that we are prepared for future financial events. This is an immediate, it’s a painkiller, right, I have to pay $400 this month and I cannot afford to pay $400 this month so I need to solve this problem and that is more of what I’m expecting we will see. There has been a payment holiday for two and a half years and it’s going to be extremely painful to get Americans back into repayment. the multiple delays have made that more difficult and so we are going to have to make it much easier to help users kind of get back into this flow that have been taking advantage of the moratorium.
Peter: Right. So then, Sunil, what’s success going to look like here? I mean, what is the potential impact of the work you’re doing with FutureFuel?
Sunil: I think, for us, success looks like the ability to positively change millions of people’s lives for the better, right. I think, collectively, that’s the kind of mission that we share with FutureFuel and with a number of our financial institutions. More directly, in terms of the KPIs, we’re looking to engage as many of our financial institutions as possible and enhance their mobile first experience so that more people are exposed to the messaging and the capabilities of the FutureFuel application and be able to, you know, hopefully, that helps us increase the enrollment and then drives greater financial wellness. So, from our perspective, the more mobile apps, banking apps that we can light up with the FutureFuel capability and get that enrollment going to see the path to wellness being taken by millions of people across the country, I think for us that’s kind of what I look at from a success metric.
Peter: Right, right. So, I want to close with just looking into the future here. I remember talking with Mike Cagney of SoFi ten years ago and I think student debt was like approaching a trillion dollars, you know, somewhere close to that, now we’re at $1.7 and I just wonder are we going to get to $2? I mean, what’s it going to take to kind of really make a dent so the numbers start going down? Maybe, Sunil, I’ll start with you and Laurel, you can have the last word.
Sunil: Again, for us, Peter, it’s all about being able to provide the tools so that folks can basically work to manage that debt in a smarter way. We know 81% of people with student loans say that they’ve had a delay of more than one or more key life milestones because of that debt so if were able to help them kind of manage that better and if we can help by leveraging FutureFuel’s capabilities to save users an average of $300 per month, I think that savings could be directed in the right places to unblock other financial milestones that they have. So, for us, that’s what we’re looking to accomplish through the program.
Peter: Right. Okay, Laurel, last word.
Laurel: So, we’ve saved users $70 Million and about 3,500 years off their debt today, we’re extremely metric-driven. What success looks like from our perspective and working with Sunil is he’s speaking to the impact across their FIs and their customer base is just that and being able to surface to every single financial institution that we serve, the impact we’ve generated for their customer base, retaining that customer base, growing your customer base and really having your direct through line in the student debt savings that we create and the increase in deposits that we are seeing because those precious dollars are being maintained with that financial institution.
The trajectory of the total amount of student debt is rapidly accelerating, it continues to outpace inflation, perhaps not this year in this particular moment, but since 1978 it’s outpaced inflation by four-fold and we know that our entire economy in workplace, in jog market is constructed around do you have a four-year degree and the data is very clear, that education fuels increased lifetime earnings. And so, we are going to continue to go to school, that is the way up and out for Americans, we’re looking for socioeconomic mobility, we’re looking to become educated in our traditional financial institution, we are going to exceed $2 Trillion.
I think ten years after that we’re going to exceed $3 Trillion that is why it’s even more urgent to acknowledge that this is the first financial life event that families move through, that seven out of ten are graduating with student debt and we need to organize and serve that user like we would any other financial event meeting users where they bank and where they work.
I’ll also share my dream is to start Sunil across multiple business lines within his organization bringing our embedded finance forward to financial institutions and also working with Fiserv education and the Federal government benefits organizations within Fiserv. When you’re a founder and you have an opportunity to work with an organization of this size and scale, we’ve built our staffs to scale, to serve millions of Americans at scale and the ability to do that in multiple use cases with the same technology platform to really transform outcomes is the dream and that’s the mission and just so appreciate the opportunity to speak with you all today.
Peter: Alright, we’ll have to leave it there. It’s a noble cause, I feel like it’s a real problem and the more resources that people with student debt can have, I mean, the better off the economy is going to be really. So, thank you, Laurel, thank you, Sunil, appreciate your coming on the show today.
Sunil: Thanks, Peter.
Laurel: Thank you, gentlemen.
Peter: As I said, I think partnerships like this are so important because obviously, Fiserv have massive reach, you know, FutureFuel has a really great system, a great user experience and combined, they can really make an impact here. I think this is the thing that is so important that people know their options and people need to be presented something in a simple way. Laurel talked about six minutes, not a big investment and this is the first big debt that people have, they need to be able to deal with this in an optimal way, looking at all the different options that are available. You know, it needs to be every single person who has student debt needs to know about these programs and I think that’s the promise here and I feel like it’s so important to get people on a path to a good financial future.
Anyway on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.