Managing student loan debt

By Christian Widhalm, Chief Revenue Officer at LendKey

For Generation Z, the COVID-19 pandemic probably will be the defining financial event of their lives – much as the Great Depression or World War II impacted earlier generations. It will shape the economic prospects and behavior of Gen Z consumers for years to come.  Credit unions have a unique opportunity to help Gen Z members meet their financial needs in an economy that is being reinvented by the pandemic – and in the process can win the lifetime loyalty of this large and important customer base.

Gen Z is usually defined as the population segment born after 1996. The oldest group members are in their early-to-mid 20s and are recent entrants into the workforce. They’re not facing an easy time. Until the onset of COVID-19, the US was enjoying record-low unemployment and a robust economy. That changed quickly, and Gen Z members are now looking at a sharp reduction in economic activity and an uncertain job market. Adding to their financial pressures, most Gen Zers haven’t had time to accumulate savings. But they do have debt – mostly for student loans. According to one survey, about 75% of Gen Zers will have to pay off student loans, with 38% owing $25,000 or less, and nearly 24% owing between $25,000 and $50,000.

Credit unions are in an excellent position to help this generation cope with their student debt and start down a successful financial path.

Private Student Loans Meet Gen Z and Credit Union Needs

Private student loans and student loan refinancing are an important credit resource for students and graduates – and can be valuable asset classes for many credit unions. Unlike federal student loans, which only carry fixed interest rates, private student loans may have fixed or variable rates. Borrowers may thus have lower monthly payments during the early repayment years, when they are starting their careers.

For credit unions, private student loans and refinancing solutions can help diversify the balance sheet and credit risk, add assets with relatively attractive yields, and offset other sources of loan volume that may be reduced in the COVID-19 economy.

Launch Pad for Valuable Member Relationships

Student loans also can be the key to attracting Gen Z customers, as these entry-level products can lead to profitable long-term relationships.

According to a study from research firm Cornerstone Advisors, the lifetime value of a student loan borrower who uses 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.

Partner with the Right Platform

For most credit unions, creating a student loan program from scratch is costly and has a long time-to-market. Fortunately, a robust lending-as-a-service platform, like the one we’ve built at LendKey over the past 10 years, provides an effective solution. Over 300 lenders have used our digital platform to originate or participate in nearly $4 billion in private student loans, student loan refinancing, and other credit products.

It is important to partner with a firm that not only has expertise in the asset class and digital solutions but also has robust systems and processes. LendKey, for example, can guide credit unions through the entire end-to-end process of building a student loan portfolio – including online applications, underwriting and pricing, credit risk management, security protocols, loan servicing, and collection.

Gen Z consumers are known to conduct their financial lives digitally. The right platform can help credit unions deliver the student lending solutions that Gen Zers need, with the digitized “on-demand” service that these valuable consumers expect and demand.

Learn more about the lifetime value of a student lending relationship by downloading the whitepaper today.

Education Lending