Is your student loan or grant business struggling to get a fair deal on a merchant account – or even to be accepted? NMA can help. Read on for our expert view on the challenges you face and then get in touch for more information about how we reduce your risks and costs.
Student loan debt in the US is at an all-time high, and there’s never been more demand for student loans, grants, student loan consolidation, and related services. In 2019, student loan debt reached $1.56 trillion, an incredible 7.56% of GDP. Meanwhile, institutions awarded students more than $140 billion of grants in 2020.
The average borrower owes $37,172 when they graduate; these loans create debt that will be around for decades to come. While the conversation about the adverse effects of this debt continues, the fact remains that businesses servicing this industry are likely to continue to see a high demand for their services in the years to come.
Why Are Student Loan and Grant Companies Considered High-Risk By Banks and Credit Card Processors?
Regardless of whether you are servicing student loans, consolidating loans, or providing another related service, banks and credit card processors are likely to see your business as high risk.
The default rate for borrowers attending for-profit universities is 52% after 12 years. This creates uncertainty and risk that many financial institutions are unwilling to share. Additionally, a high incidence of fraud creates further risk. Last year, a government report identified more than 75,000 people who could be committing student loan fraud by claiming zero income while on income-driven repayment plans. Their total loans amounted to $4 billion.
For these reasons, businesses that offer services related to student loans struggle to get approved for a merchant account and often must pay very high fees.
How To Reduce Your Risk
It’s hard to reduce the risk of long-term loans because students’ financial situations may change substantially over their lives. What companies can do is use best practices to reduce other risks.
This includes protecting your business against fraud by maintaining solid bookkeeping and financial records. You should also communicate regularly with customers to ensure they understand how your service works and their obligations for making payment.
Additionally, you should consider working with a payment processor, like NMA, who really understands your industry and who can help you put strategies into place to reduce your risk further.
How NMA Can Help You Manage Your Risk
Unlike a typical bank, we can help seemingly high-risk companies to manage their risk effectively through a combination of careful underwriting, relationship building, and ongoing monitoring. By taking care of the small details, we turn ‘high risk’ accounts into ‘managed risk.’
Together, our payment processing solutions and global network of strategic partnerships enable your student loans and grants company to save money, reduce risk, and help you get funds deposited safer and quicker than with other competing solutions.