A large financial institution and a fintech startup have forged a common bond over student debt.
Insurance giant MassMutual has partnered with CommonBond, a 6-year-old firm that refinances student loans, to offer tools to advisors who have clients looking to restructure their debt. The partnership brings the tools to MassMutual’s 9,000 financial advisors and marks the first of a handful of planned agreements to come in 2019, says Veena Ramaswamy, CommonBond’s head of corporate strategy.
“A lot of [advisors] are seeing it’s hard to have this discussion to this demographic without solutions,” Ramaswamy says. “Both ends have tremendous value working with each other.”
The company aims to fill an information gap for MassMutual’s advisors through its program to help clients save money on their debt, Ramaswamy says, adding that the tools will cater to millennials and Generation Z clients.
In addition to advisors accessing refinancing products, MassMutual also has the ability to purchase loans directly from the tech company.
The rise in student debt has opened the market for student refinancing, with companies like CommonBond, SoFi and Earnest popping up in recent years.
“Gen Z and millennial customers are in high value,” says Ramaswamy.
For example, SoFi even expanded into
For advisors trying to reach younger clients, student debt planning is becoming more important. The number of borrowers under the age of 40 grew 8.5% from 2007 to 2017, according to the Federal Reserve Bank of New York. Total amount of student loans surpassed $1.46 trillion in the fourth quarter of 2018.
College debt has even become a hot-button issue among the 2020 presidential candidates. Democrat Bernie Sanders proposed a tax on
Another Democratic presidential candidate, Pete Buttigieg, said in the second round of debates that, “If you can refinance your house, you ought to be able to refinance your student debt.”
CommonBond has funded over $2.5 billion in loans, according to the company, and has more than 300 corporate client partnerships.
In May, MassMutual partnered with Tuition.io to launch a loan repayment and management program.
Next-generation clients are overwhelmed with debt and many feel they have to pay off their student loan as quickly as possible, says Darin Shebesta, a financial advisor for Jackson/Roskelley Wealth Advisors in Scottsdale, Arizona. But he cautions them to be patient in case of emergencies. “They won’t have as much assets if they pay their student loans off,” says Shebesta.
In addition, there are dangers to refinancing student loans. For example, federal loan programs offer debt forgiveness if the client were to pass away unexpectedly. By refinancing to a private loan, debtors may lose that option.
CommonBond offers debt forgiveness, even if there is a cosigner, states a company spokeswoman.
“You have to be conscious of what you're gaining and what you’re giving up,” Shebesta says.
