Americans are currently saddled with $1.5 trillion dollars of student debt. $1.5 trillion dollars. This is no longer a personalized problem, only affecting a few people here and there. It’s a crisis. The good news? Debt relief programs, including employer-issued benefits, are cropping up. But before we can look at those, it’s important to understand the current scene and how we got here.
Here’s the deal. Tuition and fees at public and private colleges and universities rose at about three times the rate of inflation between 2007 and 2018.
And when you look at current costs compared to those incurred by students in 1988, you’ll see that, taking into account inflation, these costs are about three times as high as they were 30 years ago.
Even in the face of these mounting costs, students and families still see college as a good investment. They sign on the dotted line for loans that will likely end up burdening them for years and years to come because they believe higher education will change their lives for the better.
Unfortunately, these students chasing their career dreams are often punished for seeking financial help. Seth Frotman, former student loan ombudsman at the federal Consumer Financial Protection Bureau and current executive director of the Student Borrower Protection Center, explained it this way:
“In this country, we essentially treat student loan borrowers the same way we treat tax cheats (…) We will seize your wages. We will seize your tax refunds. We’ll even seize your Social Security benefits. We don’t allow them to have a second chance in bankruptcy all because you have a student loan. That is wrong.”
Something’s got to change.
Some current solutions are proving to be less effective than desired. Take the Temporary Expanded Public Service Loan Forgiveness Program (TEPSLF). This program was funded by Congress in 2018 to help public servants (like teachers and police officers) access loan forgiveness resources and was afforded a budget of $700 million dollars across two years.
However, of the nearly 40,000 applicants, as of April of 2019 only 262 people have actually received debt relief. That’s a whopping 0.006% success rate. Many blame a complicated application process and confusing requirements. Clearly, this solution is not working.
A report issued June 14, 2019 by the U.S. Department of the Treasury included recommendations for improving the current student loan situation. The authors of the report call on colleges and universities to be more transparent about tuition, fees, and cost of living in acceptance letters. They also recommend financial literacy courses for students. While changes like this might help, what about people who are already weighed down by student loans? How can we address existing issues?
Employer benefits and fintech integrations: Promising options
More and more employers are adding a new option to their suite of benefits: employer-assisted student loan repayment. Think of it like retirement savings. Employees pay their monthly loan bills, employers kick in a matching percentage. The debt gets paid off faster so employees can move on with their lives and shed the weight of endless bills. Companies like Vault give HR departments the platform they need to connect employee loan accounts with employer payments. No roadblocks.
Finicity is proud to power some of these solutions with our data access and insights products. This problem isn’t going to go away on its own and complicated debt forgiveness programs aren’t helping. This 21st century crisis needs 21st century solutions. Simple. Hassle-free. Effective.
Lenders have long faced daily attacks in the form of fraudulent applications, doctored statements, and fake identities. Due to the lack of in-person interactions, online financial institutions and digital lenders have an added threat to contend with while doing business in cyberspace.
Without face-to-face interactions, fraudsters and thieves attempt to use stolen identities and fictional financial data to commit online financial crimes — believing it to be an easier or more successful prospect.
All financial services companies are subject to Anti-Money Laundering (AML) regulations that usually require an intensive Customer Identification Program (CIP). These policies play an important role in fraud prevention, but are only a basic element of a broader range of risk-analysis and management practices.
An Expensive Cost of Business
When fraud happens, it comes with a cost to lenders. Traditional lenders incur a cost of $2.83 per each dollar of fraud. For large digital lenders, that cost rises to over $3.00 per dollar of fraud. Digital and online lenders also face a five percent higher incidence of fraud attempts opposed to those lenders with little to no digital presence. In either instance, fraud mitigation must be an integral part of any lending risk management plan.
The emergence of consumer-permissioned access to financial data for digital verification services is providing yet another tool to reduce fraud, and has the added benefit of a better experience for the borrower.
Reduce Successful Fraud Attempts with Reliable Digital Verification
Almost half of large institution risk management executives see identity verification as the biggest challenge facing their institutions. Fraudsters exploit vulnerabilities in detection by compiling fake applications, or synthetic identities, that are a composite of several different identities.
In addition, digital copies of bank statements and other financial documents can be readily manipulated for the benefit of a fraudulent application.
Digital verification procedures that are part of a well-developed CIP and Know Your Customer (KYC) practices reduce the chance of synthetic identity fraud, while virtually eliminating doctored documents. Through consumer-permissioned access to financial data, verifications can be based on or validated by information direct from a financial institution. This is dramatically better than relying on documents that have changed hands at least twice in the loan application process.
Access to transaction data provides the opportunity to verify or validate assets, income, and employment. As needed, this data can be compared with other source data, providing an added layer of security for lenders. For example, income streams can be identified by looking at transaction data within a checking account, and verified against employer provided data.
The incidence of fraud is not a variable that lenders can control, but the success of those attempts can be reduced with best practices and strong digital verification standards.
Digital Verification Encompasses a Wide Range of Applications
Using consumer-permissioning provides an additional layer of protection as it requires the applicant to know unique personal identifying information (PII) for each financial account they intend to use. As they go through the digital verification process, several aspects of an applicant’s identity are challenged.
A fraudster would require access to PII to successfully launch a digital verification, and even in that case it’s unlikely all the other information they’re attempting to provide would match with the data pulled directly from the financial institutions.
This helps reduce successful fraud attempts.
Other verification procedures may include a combination of:
- Identity and identity document verification
- Bank account ownership
- Knowledge-based authentication
- Identity risk scoring
Online lenders are exposed to a broader range of vulnerabilities and thus require more intensive verification and mitigation procedures.
Regardless of whether an institution provides in-person services or digital lending, preventing fraud is a key to reducing the cost of doing business. Applying digital verification in conjunction with regulatory practices will ensure the best defenses against successful fraud.
By Sid Thomson, VP of Product
At Finicity, we’ve been amazed at the positive response to our digitizing the verification process through our asset and income reports. After all, who doesn’t want to move away from the days of phone calls and emails to chase down statements and documents needed for verification.
Today we announced Finicity Reports, a standalone web solution that is easy to manage and can work for lenders of any size. This online portal broadens access to our verification of assets reports in cases where a lender may not be using automated tools that integrate our reports or where it fits better within their process.
Fannie Mae Day 1 Certainty™
You’ll get more than just a streamlined, digital verification process with Finicity Reports. You’ll also receive the added benefit of Fannie Mae’s Day 1 Certainty™. Finicity is now an authorized integrated vendor for asset verification reports within Fannie Mae’s Desktop Underwriter® (DU®) tool.
Day 1 Certainty gives lenders freedom from representations and warranties by validating loan data upfront. Now you can better manage your risk and streamline your lending process.
A Faster, More Accurate Experience
With Finicity Reports, you easily request and manage your verification reports. Once you initiate a new report, an email – with your brand – is automatically sent to your customer. This email provides a path for the borrower to quickly and securely connect with their financial institutions, identify financial accounts and permission access to data. Those few steps – can be repeated for as many institutions and accounts as they have or you need.
Once they’re done, Finicity Reports uses your customer’s permissioned financial data and creates a verification report. If you need it updated, you can refresh it later with the click of a button. You don’t have to wait for the new month’s bank statement any longer or make an additional request.
Secure and Consumer Oriented
Privacy and security are very important to us. All data and interactions are protected by bank-level security. As a matter of fact, we are routinely audited by many of the largest and most stringent financial institutions.
If you have to deny your customer for any reason found in their verification report, Finicity is set up to deal with the dispute since we’re also a Consumer Reporting Agency. We have adopted policies and procedures for fair and accurate reports, the timely resolution of disputes and the safe and reliable storage of verification reports.
Finicity Reports will be directly accessible at FinicityReports.com later this month. In the meantime, get to know Finicity Reports better with our Frictionless Lending whitepaper and Finicity Reports brochure.
Finicity demoed Finicity Reports at this past Finovate Fall in New York, Sept. 11-15. For a taste of how Finicity Reports can improve your lending process, watch the video below: