Pay off your student loan early with less interest — that’s the idea behind the ChangEd mobile app, which is partnering with Miramar-based Tropical Financial Credit Union to provide the student-loan payment service free to customers with checking accounts.
Young people burdened by student loans could save $10,000 in interest on $37,000 in a 25-year loan by paying an extra $50 a month in “spare” change toward the loan, according to ChangEd, a Chicago-based startup that won an investment from Mark Cuban on ABC-TV’s “Shark Tank.”
“You can save 30 percent,” said Nick Sky, who co-founded ChangEd along with his brother, Dan Stelmach. The pair were struggling with their own student debt from college when they launched the app last year.
A $37,000 loan would cost more than $60,000 by making only the minimum payments and paying full interest, for example.
Here’s how the service works: ChangEd app members link their debit and credit cards to the app, and every time they make a purchase, the amount is rounded up to the nearest dollar. For example, if a ChangEd user buys a tall-sized Salted Caramel Mocha Frappuccino at Starbucks for $4.25, an additional 75 cents is deposited in a special FDIC-insured account earmarked for student loan payments.
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Once the balance hits $100, the money is sent to the loan servicer. No more than $10 a day is collected at one time, according to ChangEd, which charges $1 a month for the service.
But for those who have a checking account with Tropical Financial Credit Union, the ChangEd service is free.
“Student loans are this behemoth hanging over the head of so many people,” said Amy McGraw, vice president of marketing at Tropical Financial, which has locations throughout South Florida.
She said the credit union recognized that millennials — currently ages 22 to 37 — may be putting off major life decisions, such as getting married or buying a house, because of their student loans.
“It’s the new financial crisis on the horizon. If we don’t do something now, it’s going to come crashing down in 10 to 15 years,” McGraw said.
So Tropical Financial recently partnered with ChangEd app creators Sky and Stelmach who in 2017 made a pitch for their company to investors on “Shark Tank.” They struck a deal with Cuban, a venture capitalist and Dallas Mavericks basketball team owner, who invested $250,000 for a quarter of the company. The show aired on Jan. 28.
“We have someone who understands the problem (of student loan debt) as much we do,” said Sky of Cuban, who has challenged President Donald Trump to address the rising cost of college and student debt.
Statistics show student loan debt is a growing problem. Sixty percent of students who completed a master’s degree in 2015-2016 had student loan debt, either from undergraduate or graduate school. Among those with student loan debt, the average balance was $66,000, according to the National Center for Education Statistics in Washington, D.C.
Sky, 30, and Stelmach, 28, now work full time marketing their app and are planning more partnerships with financial institutions. Tropical Financial is one of two credit unions in the country that have partnered with ChangEd to offer the app for free to customers; the other is Altra Federal Credit Union in Wisconsin.
Tropical Financial has assets of about $720 million with 65,000 members in Florida, New York and Missouri.
Parents, grandparents and other family members also can help a student pay off their loans by signing up on ChangEd in their own name and entering the student’s loan number on the app. If they’re Tropical Financial customers, they also can access the service for free.
A Tropical Financial checking account is free for customers up to age 26, or for customers who keep at least a $500 balance, McGraw said.
The ChangEd concept is similar to “Acorns” investing, also available through an app, but with ChangEd the money can only go toward paying off student loans.
Since launching in 2017, the app has been used to pay off $1 million in student loans, Sky said. ChangEd said it has more than 25,000 members.
For more information on the Tropical Financial Student Round Up program with ChangEd, visit tropicalfcu.com/changed.