Student loans are crucial for making credit unions relevant to young people
Student loans continue to plague our youngest generations. This debt is keeping us from buying cars, buying houses, having kids, and generally moving on with our lives. Need proof? When the U.S. Department of Education offered to freeze student loan payments during the COVID-19 pandemic borrowers collectively agreed wholeheartedly. So much so that more than 88% stopped making payments entirely.
Which, let me mention, doesn’t make a lot of financial sense, long term. The federal government also put a freeze on interest, meaning this has been the best chance many of us have ever had to make solid progress on paying off those student loan balances. So why aren’t more people taking this golden opportunity?
Student loan debt is overwhelming.
I wasn’t kidding about how this debt has affected multiple generations of young people. The numbers around student loan debt are truly astonishing.
As of last year there was $1.58 trillion of outstanding student loan debt nationwide. Around 30% of college students are relying on loans to attend college and the average amount of student loans per borrower is sitting at just under $40k. I don’t think it’s overstating to say that student loans are the financial anchor weighing down at least two generations.
Student loans are an opportunity for credit unions to make a difference
Helping young members figure out how to address their student loans could easily be the golden ticket to their financial hearts. And CUs are constantly talking about needing younger members. So the connection is obvious.
And it’s good business, too. People burdened by student loans often can’t buy new cars or homes. Some even have to delay starting families, or work multiple jobs to keep up.
A missed opportunity
I’ve been a member at my CU for most of my life. My first and only debit card still carries their logo. But when I turned 18 and started looking at student loans, I didn’t even think about asking them. To be quite honest, they’d never said a word to me about my student loans or my financial future.
Now this was more than a decade ago and I can’t know if student loans were even on my CU’s radar back then. But I really wish they had been. If someone had been there to walk me through the process, weigh the costs and benefits of deferring payments, I would have been a much bigger fan of my CU by now. And you can be sure I’d ask them the next time I needed a loan.
Looking back, my CU could have hit a home run, but I can’t even say that they missed. They never even stepped up to the plate.
Student loans are a chance for CUs to do what they do best
Plenty of CUs offer student loan refinancing, and some even service student loans directly. Truly enterprising CUs have stepped up their community involvement and financial education initiatives. These are all excellent, but they don’t change the fact that student loans only make up a very small portion of the total lending portfolio.
Credit unions probably won’t ever hold the most student loan debt, even among private lenders. However, what CUs do best is make personal connections with their members. Yes, your members like the low rates, I won’t argue with that. But they also come to you because financial decisions are big and scary, and they trust you.
Student loans are probably the biggest financial decision most college students will make before they’re 30. Before they buy a car, or a house, they’ll take out student loans. This is your chance to make that personal connection. And it might be your only chance.
When you pass up the opportunity to help, whether by staying passive or just handing your members off to another lender, you’re sending a big, ugly message. You’re saying you don’t really care. That your members don’t come first. And there’s no better reason for your member to find another financial institution to call home. Don’t give them that reason.
Be there and be the resource they need
Not every CU is set up to service student loans directly. It’s a monster service, and there’s no shame in teaming up with another service provider as long as your CU remains part of the process and you have an expert or two on hand to talk to.
There’s a lot you can do to stay involved and help students and their families make better decisions. You could offer personal financial counseling, partner up with local schools, or do outreach at community events.
The key is to get in front of local high school and college students, early and often, so you’ll have a good chance of unlocking their Lifetime Value (LTV). In other words, start that relationship early and you’ll be amazed at how often they come back to you later in life.
And stay in front of former students and families after college. Paying back student loans can take a decade or two… just in time for their kids to start college. Once someone is out of college and working, refinancing and consolidating student loans can be a big opportunity to reduce the burden and pay off student loans sooner. Stay involved, celebrate successes, and be present in your members’ lives.
After all, this is “People Helping People” in action, a huge part of what makes a credit union a credit union. It’s part of every credit union’s DNA.
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