Online bank aims to ‘crush’ student loan debt
April 06, 2012
Saying it will help "crush" student loan debt, a new online bank is offering a different type of rewards program. The SmarterBank checking account is being marketed to those with student loan debt, promising "SmarterBucks" that can be automatically applied as extra principal payments to those loans.
While critics contend that encouraging spending as a means to pay down loans is counter-intuitive, SmarterBank says the program represents a sensible way to reduce student loan debt when used properly.
An initiative of Boston-based financial aid firm SimpleTuition, SmarterBank is the latest entry to the online banking marketplace. In addition to its free checking accounts, the bank also offers free debit cards, ATM access at 40,000 locations and online bill pay. Banking services for SmarterBank are provided through Bancorp, a commercial bank that administers private label programs for its affinity partners.
According to SmarterBank, its SmarterBucks rewards program is what sets it apart from other online checking accounts. While members can enroll in SmarterBucks separately, the bank advises combining the program with its checking account to maximize earning potential.
The SmarterBucks website lists several ways account holders can earn rewards:
- 0.5 percent back in SmarterBucks for purchases up to $100
- 1 percent back in SmarterBucks for individual purchases in excess of $100
- 5 percent back in SmarterBucks for certain special offers
- Opportunity for family and friends to contribute SmarterBucks to an account
Account holders can apply their SmarterBucks to any student loan, and the rewards associated with the checking account do not expire. In addition, payments will be automatically made from the SmarterBucks account to the designated student loan.
"Total student loan debt currently stands at $1 trillion and growing," said Kevin Walker co-founder and CEO of SimpleTuition, in a press statement. " Add to that a poor job market and it paints a challenging picture for graduates and our society as a whole. We built SmarterBank as a revolutionary way for students and graduates to start chipping away at their student debt."
According to SmarterBucks, paying an additional $10 a month toward a 10-year $8,500 loan at 6.8 percent interest can save up to $1,500 in interest costs and shave 16 months off the repayment period. Extra payments of $50 a month can reduce the repayment time by 51 months and save up to $5,000 over the life of the loan.
But the key for users, just as with other rewards programs, is to allow the rewards to build up over the course of normal spending. If users instead choose to spend more for the sake of the rewards, that money would have likely been better spent simply purchasing the rewards -- or, in this case, paying down the debt -- directly.