Education Loans: A Relationship To Bank On

Education loans hold the key to lasting membership and greater engagement for credit unions and other community lenders. Building a brand with prime members at the beginning of their credit journey is crucial for traditional lenders to maintain deposits and grow assets over time as millennials go through life cycle events.

Community lenders open doors to a new customer as soon as a student loan application is complete. New research on borrower trends suggests that it will be a fulfilling and potentially lifelong relationship.

The price tag on a diploma has risen nearly 450% since the early 1980s, more than double the growth rate of median family incomes and more than quadruple the increase in housing costs, according to the National Center for Public Policy and Higher Education. Overall student debt has climbed to an astonishing $1.5 trillion.

Financing the futures of those without or with limited access to government loans is a significant opportunity for traditional financial institutions to attract borrowers with competitive rates and service, and then build on those relationships through cross-selling tactics.

Opening New Doors

New research¹shows that 60% of borrowers surveyed who applied for a student loan from a lender other than their primary financial institution went on to add further products through the education loan provider.

Overall, the lifetime value of a student loan borrower who adds five additional products, such as a checking account, mortgage, credit card, or investment account, could be nearly $23,000. For a portfolio of 100 borrowers, using between one and six additional products, the lifetime value would approach $650,000. 

There is also a large cross-sell opportunity for financial institutions that offer student loans to their current customer base. The study by Cornerstone, a leading financial service consulting firm,  estimates that two-thirds of consumers who take out student loans from their primary bank or credit union subsequently add other products with the same institution. For example:

• 65% opened a new checking account
• 57% got a credit card
• 44% opened a new savings accounts
• 19% received a mortgage or home equity loan

Demand for private student loans, 11% of the market in 2017, will increase as more borrowers seek an alternative to the loan amount caps of a federal loan. These loans enable lenders to improve yields and diversify assets, while applying sound underwriting practices to help keep the risk of default in check (as compared to federal loans which have few underwriting standards). Since 2011, charge-offs and delinquencies have fallen to the lowest point since the last recession.

Our research shows an opportunity to reach both younger and older members, with 8% of 18-24 year olds indicating that they will apply for student loans within the next three years. Looking at the most senior category, 55-64 year olds, the same percentage indicated they were seeking education financing, presumably to help college-age children. For the latter category, that’s a larger percentage than those planning to borrow for a car, get a mortgage or invest in a home renovation.

Targeting Customer Needs

A well-planned, sharply focused strategy is essential for credit unions and banks to realize the lifetime value of a student loan relationship.

Utilizing customer data to target the right products and promotional strategies to the consumer is essential. For example, borrowers who are still in school are most likely to need student checking accounts or student credit cards. 

Offering services that make it easy for parents to transfer funds into a student’s account is likely to be a strong draw for in-school borrowers. That said, many of today’s students are accustomed to using mobile direct payment services and may not have checking accounts. To connect with students, it’s important for a credit union to allow for person-to-person mobile payments as this has become a “price of entry” for many Gen Zers.      

After graduation, consumers’ needs and financial priorities change. Perhaps they are in the market for a new car to commute to their first full-time job, beginning to save for retirement, or dreaming about purchasing their first home.

A credit union or bank may be able to use data to fine-tune their product offers by determining, for instance, whether consumers may be in need of an auto loan or a higher balance credit card. It’s also not too early to promote retirement savings products, as studies show that as many as 25% of Generation Zers are already saving for retirement.

Messaging and Motivation

When marketing additional products and services, it is vital to do so in a way that will resonate with your target audience. Many email marketing campaigns fail to gain traction with younger customers because the messages are a “hard sell” and heavily product-oriented. This generation of consumers is likely to be more receptive to messages that emphasize education, such as a free financial review, an educational seminar on budgeting, or a tutorial on how to understand a credit report. Campaigns also should be promoted through multi-channel strategies such as social media, video, educational blogs, and hosted events to drive higher engagement.

A significant number of 18-24 year-olds will be applying for new student loans or increasing their level of student borrowing as they advance through college and post-graduate schools, so there is a great opportunity to re-engage a borrower over the course of their academic career.

By offering private student loans – especially via digital lending platforms that resonate with today’s “always connected” consumers – credit unions and banks have a tremendous opportunity to engage with this sizeable target audience and drive meaningful lifetime relationships, adding significant value to the financial institution.

Lewis Goldman is a digital marketing and E-Commerce professional who has helped create and scale businesses and brands for multiple fortune 500 companies and is currently at LendKey.  

¹The recent study is from research firm Cornerstone Advisors and LendKey, a fintech solution enabling banks and credit unions to digital lend to prime consumers.