Help You Help You: Navient’s New Reliance on Open Innovation
Using innovation to improve the debt crisis
Background
$1.41 trillion[1].
Sadly, that’s not my retirement account balance; it’s the amount that over 44 million American borrowers owe in student loans. More crippling than the number, which puts student loan debt at the second highest consumer debt category, is the expectation that 40 percent of borrowers will likely default on their loans by 2023 [2].
Default can be detrimental for borrowers, with many experiencing a drop in their credit scores requiring them to pay significantly higher interest rates on mortgage loans, credit cards, and auto loans [3]. And while many advocates point to the federal government for solutions [4], a less obvious partner could be student loan servicers who not only have incentives to ensure repayment but also have direct interaction with borrowers.
Navient
Navient is the country’s largest loan servicer, servicing about $300 billion in federal and private student loans for about 12 million borrowers [5]. Servicers are companies that collect payments, respond to customer inquiries, and perform other tasks. Servicers also:
• Disburse money from the loans
• Respond to borrower inquiries
• Ensure the administration of loans complies with federal regulations and other legal requirements [6]
As described in their annual report, Navient’s goal is to help borrowers into the right loan repayment plans. They do so by “drawing from a variety of inputs including customer surveys, analysis of customer inquiries and complaint data…and regularly use customer and employee research panels to gather real-time feedback.” [7]
Navient and Open Innovation
In an effort to better meet the needs of borrowers and better address the student loan crisis, Navient recently launched an open innovation initiative aimed at leveraging borrowers to improve loan servicing called Navient Labs. Navient Labs is a digital platform where the company tests ideas on how to best service loans. Those ideas come from a variety of sources including customers who are encouraged to submit feedback and ideas directly to the website. Navient Chief Executive Officer Jack Remondi explained that every aspect of the student loan borrowing and repayment process needed innovation improvements. [8]
In addition to leveraging feedback from existing customers, consumer advocates and policy makers are also encouraged to provide ideas and “help [Navient] shape what the future of student loan management looks like.” [9]
Other Recommendations
Navient Labs is a good move in the right direction. Asking current customers for their feedback and ideas on the loan servicing process can help improve loan repayment rates which in turn will decrease default rates. However, there are more actions that Navient and other student loan servicers can take to address the student loan debt crisis.
Short-Term
1. Continue to offer financial planning tools: Student loans are just one aspect of a person’s financial obligations. By providing customers with financial planning and education, they can be better equipped to tackle student loan payments as well as other debt obligations.
2. Keep sourcing innovative ideas: Navient Labs is just one way to source innovative solutions to loan servicing. Equally important is sourcing ideas from other student loan servicers in order to understand and implement best practices of the field.
Long-Term
1. Partner with FinTech apps: There are many financial technology (FinTech) applications that are dedicated to helping borrowers repay their student loans. Navient and other student loan servicers should look to partner with these new technologies so that they can better help their customers to financial freedom.
2. Streamline student loan repayment options: Although many different repayment options can be helpful for different borrowers, Navient and other student loan servicers should focus on those repayment plans that are most helpful to customers.
Open Questions
A few open questions that I have as Navient continues to implement the Navient Labs initiative are:
1. How does this organization measure the effectiveness of the proposed solutions?
2. How can Navient ensure that other servicers are adopting the solutions that customers shared in order to improve the student loan servicing industry as a whole?
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[1] Federal Reserve Bank of New York (2018). Quarterly report on household debt and credit. Center for Macroeconomic Data.
[2] Calyton, J.S. (2018). The looming student loan default crisis is worse than we thought. Economic Studies at Brookings. Evidence Speaks Reports, 2(34).
[3] McFadden, K. (2018). Raising a ‘fair’ credit score to ‘very good’ could save over $45,000. Lending Tree. https://www.lendingtree.com/finance/raising-a-fair-credit-score-to-very-good-could-save-over-45000/
[4] Perna, L. W., Kvaal, J., Ruiz, R. (2017). Understanding student debt: implications for federal policy and future research. ANNALS of the American Academy of Political and Social Science, 671(1), 270-286.
[5] Navient Corporation (2018). Form 10-K https://navient.com/assets/about/investors/shareholder/annual-reports/NAVI_2017_Form_10-K_D13_2.26.18_FINAL.PDF
[6] Consumer Financial Protection Bureau (2017). What is a student loan servicer? https://www.consumerfinance.gov/ask-cfpb/what-is-student-loan-servicer-en-583/
[7] Navient Corporation (2018). Form 10-K https://navient.com/assets/about/investors/shareholder/annual-reports/NAVI_2017_Form_10-K_D13_2.26.18_FINAL.PDF
[8] Rombach, A. (2018). Focused lab to improve the student loan system. Lendedu https://lendedu.com/news/navient-launches-digital-focused-lab-to-improve-the-student-loan-system/
[9] Remondi, J. Note from Jack Remondi. https://navlabs30.navient.com/about.html#a-2
Thanks for the article! After spending two years working on Fintech products to address the student debt crisis, I can certainly agree that there are many problems in this industry!
I think the biggest problem that servicers can address is the lack of transparency in the industry. Navient administers many different plan options, however, the vast majority of users in my experience don’t know the options that are available to them. Navient has the opportunity to ask their customers what elements are most important to them (monthly payment, years of payments, interest paid) and help them to select the right plan for them. Enabling this type of innovation will require active engagement and collaboration with users.
So interesting! To your first question, I think measuring the effectiveness of proposed solutions will require an assessment of the various short- medium- and long-term metrics that predict success. This will ultimately require gathering large amounts of data and applying different models. Interestingly, machine learning can and should play a big role in this exercise. Navient has a unique opportunity to get a rich training data set to analyze outcomes. One the second question, perhaps Navient could also use an open-source model with sharing best practices. This might include round tables, meet-ups, inbound marketing (e.g., blogs, webinars) to share best practices, and perhaps even form an interactive online community to continue crowdsource efforts through a different medium.
Great read, thank you so much for sharing. This is certainly a topic at the forefront of many of our minds. In order for open innovation to maximize its effectiveness, the development funnel has to source multiple ideas, and I was wondering how Navient Labs was going about doing this? Are there ways to increase their reach and align the incentives of those sharing ideas with Navient? These are a few questions I think Navient should be thinking about as it attempts to scale open innovation.
This was such an interesting read! Thank you for sharing. Your question around measurement resonated deeply. Navient is both a profit-earning enterprise and a entity providing a social benefit for one of the most challenging problems of our generation – student debt. Identifying the right metrics is how a company like Navient will be able to develop a business case for a change in the status quo. I appreciate Navient’s open innovation approach to improving the entire process as there are potentially applicable solutions the entire industry hasn’t considered yet. If they can develop the right metrics to quickly assess ideas, they’ll be more able to make step-change improvements.
I wonder if Navient could also use the open innovation platform to beta test new products on volunteer customers? This could allow them to learn more about product advantages and disadvantages without releasing them to the full market. The only potential drawback to the open innovation platform is that it could concentrate feedback from the most passionate users, potentially diluting more “normal” users.
Given the very clear public interest in the ability of people to be able to repay their student loans and begin meaningfully saving for retirement, I’m curious if you think there would be scope for a partnership with the public sector somewhere. I think this is a very interesting space and one that has garnered way too little attention. Thanks for starting to chip away at that problem!