September 11, 2018 at 5:00 am ET
Over the past month, millions of American families have been celebrating as they send their kids off to college for the first time. This moment brings hard financial questions, uncertainty, and challenges for all families with college-bound children, but especially for non-prime Americans, or the 160 million Americans with limited access to credit and credit scores below 700. Low credit scores and poor credit histories impact students’ educational choices and pose real challenges for their parents, who only want to help their kids succeed. But it doesn’t need to be this way.
Policymakers can do more to support nonprime Americans by opening the door to new products and opportunities that can help raise their credit scores. Policymakers should support legislation like the Credit Access and Inclusion Act, which recently passed the U.S. House of Representatives. This legislation will enable a more comprehensive view of nonprime Americans’ credit by allowing credit reporting agencies to collect data from housing agencies and utility companies. This could greatly enhance the amount of positive data collected for benchmark scores provided by credit bureaus.
A single score is a particularly poor way to understand consumers, especially those on the lower end of the spectrum that have been shut out of traditional credit products, primarily designed for prime consumers. More data points mean more opportunity to boost one’s score, which in turn helps American families qualify for more helpful financial tools.
Nonprime American families are at a clear disadvantage when it comes to paying for college, and this impacts their educational choices. Research from Elevate’s Center for the New Middle Class found that 90 percent of nonprime students need help paying for college and are more likely to lean on unsubsidized student loans than prime American families.
Additionally, more than half of nonprime parents with students in college say they have more debt than they’d like, compared to just 20 percent of prime parents. It’s little wonder they are more likely to experience severe financial hardship when trying to support their children’s education.
Credit-constrained American families can’t afford for Congress to wait any longer, especially when lawmakers have an unprecedented opportunity to help American families confront the rising costs of higher education.
There is clearly an urgent need for millions of Americans to access affordable borrowing options. In my professional experience working at a large nationally chartered financial institution, small regional black-owned bank, and even in my current role with Elevate Credit, I have seen the need is even greater for the most marginalized groups in our society.
Two studies from Elevate this year found that African-Americans and women are disproportionately in a position of financial stress compared with other groups. Even prime African-American borrowers are 80 percent more likely to live paycheck-to-paycheck and 28 percent less likely to have $1,200 for a financial emergency.
I’ve seen financial technology companies at work expanding the availability of superior financial products to non-prime borrowers and marginalized groups – namely this happens when banks partner with high tech firms. Over 10 million Americans rely on payday loans every year and often find themselves in a cycle of debt and they don’t improve their credit score through these dead-end products. Innovation can fix this. The explosion of advanced analytics can mean more access and lower rates for millions.
Commonsense solutions are needed to support hard-working Americans hoping to achieve greater financial success and handle the burden of college costs. That’s why Elevate supports any legislation that helps give the new middle class a lift, like the Credit Access and Inclusion Act. Let’s encourage policymakers to get something done before another class of young Americans heads to college next fall. America’s new middle class can’t wait any longer.
Dion Harrison serves as director of bank products at Elevate Credit, a leading fintech company headquartered in Fort Worth, Texas.
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