Personetics Cognitive Banking applications, already used by leading banks to deliver AI-powered automated savings, can now be leveraged by financial institutions to help customers repay their student loans ahead of schedule, ultimately reducing the length of debt repayment plans and saving thousands of dollars in interest payments.
The student loan burden
Student loan debt is a heavy burden for large portions of the US population - Americans owe over $1.4 trillion in student loan debt, spread out among an estimated 44 million borrowers. The average class of 2016 graduate has more than $37,000 in student loan debt, a number that is steadily inching up year after year. For many millennials, the ability to repay these loans has redefined financial success: 46 percent say financial success means being debt free, compared to 21 percent who say owning a home and 13 percent who say the ability to retire is the number one indicator of financial success.
The problem is not unique to the US. The UK government has reportedly been looking at plans to ease the burden of student debt, which has soared over 16% in the past year to more than £100bn.
‘Nudging’ consumers to make debt disappear faster
Although many graduates can afford to repay their student loans ahead of schedule, only a few do - they are too busy living their lives, building careers and raising families. With a little help from a trusted financial institution, they could get rid of their student loan faster and save some money in the process.
As demonstrated by 2017 Nobel Prize Winner Professor Richard Thaler, people can make better decisions and improve their financial health when the choice is made easy for them. Based on predictive analysis of individual behavior and spending patterns, the Personetics solution enables banks to provide customers with an effortless and safe way to accelerate their loan repayment, while ensuring that sufficient funds are available to cover current and future expenses.
The benefits can be significant. For example, applying an additional $50 per week towards a $40,000 student loan carrying a 5 percent interest rate can allow a customer to pay off the loan 3.5 years quicker and save over $4,000 in interest payments.
Getting banks into the action
While government agencies, FinTech companies, and non-profit organizations have introduced solutions to help graduates repay their loans, most banks have been sitting on the sidelines so far. The few banks that have stepped into action have done so in a limited fashion, such as rounding up debit card purchases and applying the difference towards the student loan balance.
With Personetics Act, financial institutions are able to identify customers that carry a student loan, pinpoint those that can afford to pay it off quicker, then offer an automated service that is tailored to each customer and self-adjusts to changes in individual spending patterns. Doing the heavy lifting in the background, it continually analyzes the customer’s financial situation to find available funds that can be applied towards an existing loan balance - either automatically making payments on behalf of the customer or suggesting recommendations for the customer to act on.
“Existing bank plans are limited in scope and therefore unlikely to make a visible dent in any customer’s outstanding loan balance,” said David Sosna, Personetics’ Co-founder and CEO. “Our solution allows banks to offer a service that can make a difference for the average customer by eliminating their debt quicker and substantially reducing the interest they pay on their loans. By applying AI algorithms to analyze individual customer cash flows, we’re able to identify windows of opportunity for customers to make these extra payments with no effort on their end.”