Two credit unions are working to ease student debt with the introduction of a new payment technology from their partnerships with ChangEd in a six month pilot program.
ChangEd, a Chicago-based startup, is offering a 'student roll-up powered by ChangEd' app that assists students in paying off their loans through round ups. After users make a purchase with their card, the remaining change is rounded up and set aside into a separate FDIC-insured account. For example, a $2.25 purchase would set aside 75 cents while a $2.00 purchase round ups by one full dollar.
“The app is aimed at younger people who don’t have as much discretionary income,” said Amy McGraw, vice president of marketing at Tropical Financial. “The product itself has been out for a little while [and] they just hit their $1 million mark in terms of student loan payoffs.”
“Though no user has yet to pay off a loan in its entirety,” she added.
The Chicago startup drew the attention of big-wig investor Mark Cuban during its cameo on CNBC’s hit-show Shark Tank, sweeping a $250,000 investment from Cuban in exchange for a 25 percent company stake. Round ups are not a novel concept, though; Jacksonville, FL-based Community First Credit Union has a similar “Save My Change” opt-in program that collects and sets aside spare change for upcoming loan payments.
“A couple thousand people are on it [the app],” said Roger Rassman, Community First's vice president of marketing. Rassman indicates that the average savings boil down to $17.50 per month for each participating member.
Rassman also noted that though Community First isn't partnered with ChangEd, the credit union wouldn’t be opposed to it.
“We have to figure out how it integrates with our existing program and so on, but we would absolutely be interested in the concept without question,” Rassman said. "We’re not there yet with ChangEd, but I love the concept of helping people make minor changes to their behaviors to more quickly pay off their student loans."
Anyone with an account at a financial institution is eligible to use the ChangEd app, which runs users $1 per month — but Tropical Financial will spot the monthly fee for its membership so long as members link the app to their Tropical Financial checking account.
According to ChangEd, most federal loan servicers will apply these extra payments first to late fees, then to unpaid interest and principal, though there are ways to directly have payments sent to the principal through certain loan servicers.
The claim is that users can shave six years off their repayment terms, draw in $14,000 worth of savings and that the average user saves $30-50 each month when using the app.
To prevent overdraws, ChangEd never withdraws more than $10 in roundups per day, but McGraw cautions that the possibility exists due to the transfer period. Overdrafts also becomes easier when multiple accounts are linked, which McGraw advised against.
Though Tropical Financial doesn’t offer student loans, the credit union is gearing up to advertise the round up application to their membership as well as the public. By the end of the six-month period, McGraw forecasts that the pilot will garner 600-700 new users.
Altra Federal Credit Union, however, does intend to market the app with its student loan offerings. Though the Onalaska, Wis.-based credit union didn’t have a specific engagement metric, Cheryl Dutton, vice-president of marketing deemed that the pilot would be “very successful” if over 1,000 members signed up.
Dutton added that student debt was "a huge problem" since it delays individuals from other life pursuits such as buying a home or getting married.
“We’re hoping this’ll make a difference, [but we’re] very early in the process,” she said.
