The Customer Effect

How AI and automation are changing student loan payments

  • Banks are offering customers options to auto-save towards student loans.
  • It's an example of how banks are interested in catering to customers diverse savings needs, a way to keep them within the bank's ecosystem as the space gets more competitive.
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How AI and automation are changing student loan payments

For every purchase, Fifth Third Bank customers can round up and contribute the difference towards their student loan debts. Or they can add a dollar to their student loan payments each time they use their debit card. It’s an example of how banks are using automation to help customers top up their loan payments to improve their financial health.

Fifth Third Bank uses an app called Momentum to make the student loan payments, and friends and family who download it can add contributions to help their loved ones pay off their debts.

“We’ve been told by customers the impact it makes on their lives,” said Michael Crawford, product manager and senior manager for omnichannel strategy at Fifth Third Bank. “One lady said she’s on track to pay her loan off seven years early, and other person told me for the first time every they don’t have to make a student loan payment because Momentum contributions are paying off the minimums.”
Momentum phone

The bank said Momentum, which was launched in late August, has saved customers $50,000 in total — though it wouldn’t say how many customers signed up. For a loan of $37,500, the app can help the customer pay it off three to five years faster, Crawford said.

There are other tools in the market, with some claiming to use artificial intelligence to automate student loan repayments. Personetics, a tech company that builds artificial intelligence-powered customer service solutions for banks, last week released Personetics Act, a tool that detects spending patterns of customers to determine how much a customer can safely contribute. Personetics said it’s working with banks to build the technology within mobile apps, but wouldn’t say which ones.

“It looks at a subset of those individuals that have student loans, and it identifies out of this population who are the people that might be able to accelerate the payments they’re making towards their student loan balance,” said Eran Livneh, vp of marketing for Personetics. “We point to them what the potential is to get out of debt quicker, and they also save money on interest they pay in the process.”

Before the amount is transferred, customers are asked a second time if they would like to confirm.

“Because there’s a difference between making a payment towards a loan and putting it into a savings account where it’s almost impossible to bring it back, we want the customer to be aware that they’re using it to make a payment on their existing student loan balance,” said Livneh. He added that using an algorithm to figure out a safe contribution amount is likely to make a bigger impact than rounding, and that the technology can also be applied other large loans like mortgages.

For those with exceptionally high student loan debts, some question whether these tools can amount to more than a drop in the bucket.

“I think it’s something cool that the banks are offering of interest to people with student loans, but I question how effective it will be,” said Celent analyst Stephen Greer. “In the grand scheme of things, it isn’t tons of money when you’re talking about paying down a gigantic student loan debt.”

Others say it could put paying one’s loan ahead of all other financial commitments. “It comes down to the consumer to decide if they’re going to focus on loans only or hit other financial benchmarks in life,” said LendEDU research analyst Mike Brown.

But beyond helping customers put money away for student loans, Greer adds that what may be behind these moves is the desire to build trust with consumers, so they can look to the bank for other financial needs as they surface.

“The value [for the bank] is more from an advisory standpoint, gaining advisory trust,” he said. “If you really break it down, trust in institutions is separated by advisory and transactional trust — banks are trying to move into advisory trust, to offer services that are fee-based or subscription based.”

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