As a community trying to create alternatives for college affordability in the US, we need to ask ourselves why the educational loans are such a complicated subject?
In order to answer that question, I had a chance to speak with a finance wizard trying to disrupt the mortgage industry by educating consumers. The president of Finance Tactile unveiled the obscure process of home loans and obstacles to solving this puzzle. Some of the insights are very much applicable to educational loans:
- “The corporation profits from what the consumer doesn’t know”
Most students applying for education loans have little or no experience on dealing with long term debt. Even fewer know what an amortization table means. In a similar way, home buyers are overwhelmed by financial jargon and a myriad of mortgage options.
2. “Loans are seen as commodities”
As educational loans are usually under the 6% rate, they are perceived as commodities. Consequently, there is not that much thought put into taking an educational loan and there are not a variety of options available.
3. “Many financial firms build walls of opacity between users and processors”
As the uninformed undergraduate, graduate, or student family member applies for educational loans, a few percent of users understand the terms of the loans, payments and fees. A wall between education loan originators and users is filled with misinformation. User’s don’t understand the commitment terms and loan processors/financial aid offices sometimes reproduce incorrect information. The same process applies to mortgages where the giant corporations profit on what the users don’t know.