Banking Millennials on Your Own Terms
Private student loans may hold the key to appealing to this bank-averse generation
Posted by Michael VanErdewyk
Chairman and CEO, YourLoanAdviser
It’s not easy to provide financial services to the Millennial generation. Overall many are underbanked, wary of debt and banking institutions alike, and not very brand loyal. Half of Millennials are inclined to change financial institutions for a perceived better product1.
But there’s a way for banks and credit unions to get Millennials to sit up and take notice—with private student loans.
Today, about 20 million students—mostly Millennials—are enrolled in colleges and universities, with the average annual cost of attending a four-year public institution more than doubling over the last 10 years2. The gap between the full cost of attending college, including tuition, room, board, books and other expenses and the funding available with grants, scholarships and federal student loans, the average college student is faced with a gap that’s estimated at about $9,000 per year, based on a detailed analysis by YourLoanAdviser.
Private Student Loans (PSL) are frequently confused with Federal Student Loans, which have left a sour taste in many mouths. The media siren call around the student loan debt catastrophe is not relevant to private student loans. As industry experts, we know the outcome for providing PSLs is largely positive.
The financial institution controls the PSL underwriting standards and the loan itself, not the government, and delinquency rates on PSLs are far lower than that of federal loans — 2.5% vs. 11.8% respectively.
Additionally, the risk of lending to Millennial college students is low. Graduates with a bachelor’s degree earn about 66% more than high school graduates and are half as likely to face unemployment. Over a lifetime, the college grad will earn about $1 million more than a worker who didn’t complete a four-year degree. By 2020, two out of three jobs postings will require postsecondary education.3,4
By offering private student loans, banks and credit unions expand their product offerings and hang onto dollars and customers that might otherwise walk out the door to a competitor. Banks also diversify their loan portfolios in a way that is safer for them than other consumer loans.
The bottom line is that Millennials need help to finance their education in smart ways, and that means connecting with banks and credit unions in non-traditional ways. No financial services business can afford to lose these high potential customers.
Let’s look at the numbers. By 2020, Millennials will control between $19 trillion and $24 trillion and make up 50% of the global workforce, according to consulting firm Deloitte. While they’re wary of student loan debt, Millennials have seen their parents and grandparents’ savings impacted by the financial crisis and want to be responsible for their education. Keep in mind, they’ll also be beneficiaries of one of the largest wealth transfers in history, standing to inherit $30 trillion in the next few decades, according to Accenture.
Financial institutions that make the loan-borrowing experience easy for Millennials are much more likely to win them over at this early stage of their lives. And what Millennials want are easy to use streamlined solutions. There are many ways to connect with this group on their terms, such as letting them digitally access your bank from a mobile or online channel, get instant gratification and pay their bills automatically.
This is where a comprehensive Private Student Loan platform-as-a-service solution provider can step in provide banks and credit unions with a competitive edge. Rather than investing in the technology, infrastructure and customer care for these loans, banks and credit unions can leave the heavy lifting to third-party providers. At YourLoanAdviser, we offer borrower acquisition, origination, servicing, and even insure up to 100% of the loan as well as create liquidity with our capital market solutions. We’ll help you market to your existing customers/members or bring borrowers to you, you provide the loan and we take the risk.
The premise doesn’t get much simpler: PSLs are a low-risk asset that breathes new life into your business and enables students to fund their education dreams without hassle. That’s something a Millennial won’t easily forget, and it just might be enough to keep them around for the long haul.
2US Department of Education, National Center for Education Statistics
3U.S. Department of Education
4Federal Reserve Bank