Fintech lending for education

In this 4.0 industrial era, one of the innovation results in finance is easiness in getting a loan. Presently, debt is inclusively offered to everyone, both the affluent and the needy ones, including college students. In May 2019, there were 113 fintech lending firms registered in Financial Service Authority (OJK) of Indonesia, and some of them are targeting college students as their customers. These fintech firms understand that the huge number of college students is promising, and fulling their needs can result in ample revenues. Several fintech firms explicitly targeting college students are danacita.co.id, danadidik.com, koinworks.com, cicil.co.id, and pintek.id. These firms operate conventionally, in a sense that they charge interest to the borrowers. While Islamic fintech frim such as angsur.id charges no interest, in fact it employs Islamic contract, i.e., murabaha contract.

Having a loan is basically ‘normal’ because sometimes we, no matter what our profession is, need cash to cover a particular need. In the US, university students can take a student loan for paying their tuitions and then pay it back after graduating and getting a job. This mechanism is helpful as those who do not have sufficient fund can actually go to college. On the other hand, people may have a loan from the early stage of their lives; being college students with debt. However, this approach is currently less prevalent in Indonesia as the government has not granted the permit to any commercial bank to provide students loan as in the US. In fact, some fintech lending firms as outlined in the previous paragraph, have taken an early action by giving credit to college students in Indonesia.

Some fintech firms in Indonesia provide a small amount of money in a relatively short duration. Besides, to be used for paying tuition, the money from the fintech firms can also be used by students for purchasing things needed for the study, such as laptop, cellular phone, shoes, and other study equipment. Again, this solution might be helpful because not every student in Indonesia has money to make a pretty big purchase such as low-to-mid range laptop with price ranging from three to five million rupiahs. For the students to make a wiser decision, they need to at least consider the following things.

First, before getting a loan, they need to know how to pay it later. The students should identify the sources of income which will be used to repay the loan. In addition to relying on a monthly or weekly allowance from their parents, the students are also encouraged to work part-time to earn more income. There are actually a lot of ways which can be done by the students to make more money, one of them is by being the research assistant of the lecturers who usually have a research project in a semester basis. Lecturers need students to be surveyors or enumerators, and this is indeed a worthy paid-job for college students.

Second, college students should increase their financial literacy so they can decide any financial transaction wisely. At least, they should be familiar with how to calculate interest rates or margin charged by the lenders. In short, they should know which one is cheaper and which one is more expensive in terms of cost of fund that they will pay. Knowing the difference between nominal interest rate and effective interest rate is a must because fintech firms usually display interest rate on a monthly basis. The shown (nominal) interest rate is definitely not informative because the borrowers pay back the loan in a longer duration of more than one month. Thus, the students should know how to calculate effective annual rate. In the case of Islamic fintech, the payment is fixed from the beginning until the end because the contract is a buy-and-sell contract where the borrowers pay the loan in installment.  

Third, college students should purchase only the essential things. For instance, if someone is currently in need of a laptop but cannot afford it, then he may go for a loan. Having a loan must not be a habit as it may be a lifestyle in the years to come when he has gotten a job. Finally, being able to differentiate wants and needs is a fundamental skill so the decision to make a purchase, regardless by cash or by getting loan, will be appropriate with the financial condition and stage of life.