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.
Rewards re-envisioned
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.