It’s quickly getting into that time of year when the weather is warming up, summer plans are being finalized, and kids are counting down to the last day of school with excitement. Well, most kids are; college students are looking forward with trepidation as they start out their careers and begin to look at the prospect of paying back their student loans.
If you look at the numbers on these loans, you can see their concern. Currently, more than $1.5 Trillion dollars in student loans are outstanding. This summary report on Forbes paints an even scarier picture – with more than 11% of borrowers (44 million) delinquent. I know students are saying they’ll apply for forgiveness programs. Those are even tougher statistics: According to the Federal Student Aid Office of the U.S. Department of Education, fewer than 1% of students are awarded forgiveness programs. Multiple federal programs and even more private options are available to finance higher education – so many that the president has proposed cutting federal options to two. Add to that tuition (just tuition, not room and board) ranges from approximately $10,000 per year for two-year institutions to nearly $40,000 per year for out-of-state universities or private colleges, and students are questioning whether they should do even go. They’re starting their adult lives seriously in debt.
It’s time for the financial industry to do what we can. A strong marketing plan is to start a solid relationship early with our customers and helping them find solutions to refinance this crippling debt is a great way to build this relationship.
What’s the drawback? Well, these are clearly young borrowers, so they do have limited credit information and potentially challenges in finding post-graduate employment. But, guiding them through this process can set the foundation for a long-standing, strong relationship. This is definitely a scenario that can create a strong win-win for financial institutions.
Risk must be weighed, of course. Consider your existing portfolios. Follow the data and see where it takes you. If you’re drawing customers, find ways to offer incentives (i.e. save on the interest rate if you have a minimum amount of money deposited in the bank, discounts on rates on future loans, lowering the student loan interest rates after so many on-time payments, etc.). Again, it’s about helping your customer on their lifelong financial journey that is only beginning.
What’s the best thing a financial institution can do? Educate these prospects. Take the time to teach them their options. Teach them how to be responsible with savings and credit. They are starving for guidance on their finances. This will attract them to your institution, not just for a single loan but maybe for their entire journey.