Student loan debt has become one of the biggest problems for American society at $1.3 trillion, affecting 40 million Americans, and it is on track to double by 20252.
It also crosses many age groups, both younger and older savers. Student loan debt is a factor when people choose careers, and affects how they save for important long-term goals like buying a first home or retirement. Fidelity Labs, the R&D unit of Fidelity Investments, is piloting the Fidelity Labs Student Debt Tool, which is now in beta.
Fidelity Labs created a team of student loan experts, designers, developers and entrepreneurs. Using design thinking and iterative product development, this team is building resources for students, parents, and employers. They have been designed to help borrowers understand their student loans and their repayment options. Calculators and visual scenario planning provide borrowers a picture of how programs like federal repayment plans and private refinancing might impact their lives. The Fidelity Labs Incubator is also exploring ways to get ahead of growing student debt, by focusing on helping families avoid insurmountable loans to finance college.
“In the past 30 years, college tuition has more than doubled, greatly outpacing inflation. This is more than just a societal problem, it’s about Americans’ financial wellness, ” said Sean Belka, Senior Vice President and head of Fidelity Labs. “We’ve heard from young adults who are living with their parents, those who are hesitant to get married because of the debt burden they’d bring, and those who are 50 year olds who haven’t saved for retirement. We want to help people plan for their future and that means helping them with the present.”
A recent customer survey revealed that one out of every three in Fidelity workplace retirement plans carries student loan debt3. Of those:
80% say student loans impact their ability to save for retirement
Two-thirds changed their retirement plan, by lowering or stopping their contributions, or by taking loans or hardship withdrawals
Another two-thirds say it affects saving for a home or paying for day-to-day items
50% of workplace plan participants younger than age 40 hold student loan debt, and one out of four more than 55 years old carry student debt
More than 60% of those with student loans under age 40 say it affects their ability to plan for life events such as getting married or having a child
“Most people are overwhelmed with the mountain of debt once they graduate and do not have a strategy to pay it down. It just doesn’t have to be that way,” said Akhil Nigam, head of several Fidelity Labs incubators. “For example, we spoke with a 28-year old customer with more than $200,000 in student debt after eight years of undergraduate and graduate school. Not only has this affected her choice of jobs and career direction, but she has put her life on hold to manage her payments.”
The incubator pilot program takes a three-phased approach:
Help people understand and explore ways to manage student loan debt, help them make decisions about their existing loans and assist in illustrating options. As part of this beta, the team created a tool where customers can aggregate their loans and evaluate different repayment options.
Explore pre-college guidance to learn how Fidelity can help so that families can avoid taking on more debt than they can afford. This will involve pre-college financial literacy programs to help parents discuss cost of college and financing options with their children, and illustrate how student loans can affect their lifestyle.
Assist people as they manage their student loan debt among other competing goals, and as families save and invest for their financial future.