A new checking account is on a mission to chip away at the mountain of debt that burdens millions of college graduates — young or old — through a debit rewards program with the sole purpose of paying off student loans.
Called SmarterBank, the checking account is the latest offering by SimpleTuition, a Boston, Ma.-based company that offers online tools and information to assist students and parents with decision on student loans and educational financing. Some 20% of students and their parents have used SimpleTuition to make student-loan decisions.
“When we started SimpleTuition, the big “problem” we were trying to solve was that there was too many student loan choices on the market,” said Kevin Walker, president and CEO of SimpleTuition, during a phone interview.
The SmarterBank checking account came into existence to address the mountain of student debt that burdened college graduates.
According to the Consumer Financial Protection Bureau, the total outstanding student loan debt, including private and federal student loans, exceeded the $1 trillion mark several months ago.
“It occurred to us that, over the last year or so, if we could come up with some way of helping graduates manage the debt that they have, there had to be an opportunity there. And what we come up with was SmarterBank, together with the SmarterBucks rewards program,” Walker said.
Rewards marked for debt
The SmarterBank checking account is ideal for recent graduates. The account charges no monthly maintenance fee and offers free access at more than 40,000 ATM on the STAR® network.
The main attraction is the SmarterBucks rewards program, which automatically directs the rewards toward student loan debt.
Accountholders earn SmarterBucks when they make debit card purchases at the rate of 0.5 percent on the first $100 spent on a purchase and 1 percent on everything over $100.
For example, on a $600 purchase, 50 cents will be earned on the first $100 and $5 will be earned on the remaining $500 — for a total of $5.50 in SmarterBucks, equivalent to a $5.50 toward a student loan.
By May, the SmarterBank checking account will offer 5 percent rewards through a merchant-funded rewards program powered by RewardsNOW, a provider of loyalty programs.
It’s not just recent graduates who can benefit from a SmarterBank checking account. Current and prospective students can use it to get a head start on their debt repayment. Family members can also open an account to contribute to a student’s debt.
“If Grandma wants to give Junior $5 or $10 toward paying down his student debt, she could set that up and do it through SmarterBucks,” said Walker. The funds would go directly to the loan servicer.
On a 10-year loan of $8,500 at a 6.8% interest rate, an extra $10 per month repaid would eliminate the balance 16 months faster and result in $1,500 in savings, noted the SmarterBank website.
“It’s striking when you see that what amounts to a small amount of money on a monthly basis actually can have a very meaningful impact on getting that person out of debt faster and at a lesser cost,” added Walker.
On a larger mission
SmarterBank won’t stop at just student loans since there are other forms of debt on the shoulders of graduates.
“We’re not ready to support it yet, I think — in the next couple of years — we will make the platform available to pay down other kinds of debt.”
By the end of the year, SmarterBank aims to have checking, savings and prepaid products that have the same mission of tackling existing student loan debt.