How Fintechs Are Changing Student Finance

In a world of lifelong learning, eduction will evolve to offer new possibilities

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The Costs Of Studying Today

University can be expensive, and it's getting more so.

When I went to University in the early 2000s, the tuition fee for my undergraduate degree was £1,000 ($1,250) a year. Nowadays, for domestic students in England, the cost is £9,250 ($11,600) per annum. International students pay even more - the cost can be anywhere from £10,000 ($12,500) to £26,000 ($32,600). Usually, an undergraduate degree takes 3 or 4 years to complete in the UK.

For undergraduate courses, domestic students in England don't need to pay upfront. Instead, debt for tuition fee payments accumulates during a course and then is gradually paid back from earnings. Those starting University in 2023 will pay 9% of their salary on their income above £25,000 towards their debt. As the money is not needed upfront, in one sense, there's no financial barrier to studying. But still, most students leave University with high levels of debt, which can be off-putting.

Students in England leave University with more than $50k in debt. Surprisingly, the US is only fourth on this list, mainly because those attending Ivy League schools or other select private schools pay the highest tuition fees. Ivy League students comprise less than 1% of the total student population. Also, many of those who study "in state" pay a lower level of tuition compared to those who study "out of state", and approx 80% of students in the US study "in state". Students in Norway and Japan likely accumulate debt due to the high costs of living in these countries.

For post-graduate courses, the fees can still be higher. For instance, a Masters in Management from London Business School costs £47,500 ($59,500). An MBA from Cambridge University costs £69,000 ($86,500), with an additional £18,625 ($23,350) needed to cover living costs. For a Masters degree, compared to Undergraduate courses, there's usually much more limited financial support available, even to domestic students.

In the US, student finance has long been a hot topic. President Biden has eliminated $100bn of student debt through various programmes. However, the Supreme Court struck down his main student debt forgiveness plan, which aimed to wipe out $400bn of an outstanding $1.6tn+ loan book. Many voters, especially younger voters, feel President Biden hasn't gone far enough in student debt forgiveness. Yet he is constrained by the courts and Congress in going further.

Source: Federal Reserve Bank of St. Louis via CFR - Is Rising Student Debt Harming The US Economy

One challenge with traditional student loans in the US, is that repayments begin quite soon post graduation - even if the student hasn’t yet found a job. And the repayment amounts are not linked to the borrower's income. So if a student finds a low paid job after accumulating a high level of debt, their student loan repayments can eat up a high proportion of their salary.

Are Income Share Agreements A New Way Forward?

Edly is among several organisations that offer Income Share Agreements (ISA) as an alternative to student loans. In the ISA model, repayments are linked to income, with a minimum salary threshold. There are similarities with the system utilised in undergraduate education in the UK mentioned earlier in this post. Edly's offerings come with an academic year and a lifetime borrowing limit. These limits are often lower than traditional student loans - so they will only be suitable in some cases.