A woman banker talking to a mother and her daughter.

After the financial turbulence of the last two years, there may be no “normal” to return to. What better time to test new deposit strategies like student lending?

The second FOMC Board meeting of the year takes place this month. Hopes for an initial reprieve from an unprecedented rate cycle were dampened in late 2023 when private and federal economists alike downplayed a Q1 rate reduction.

Instead, financial institutions likely have at least one more challenging quarter to navigate. But even with a rate cut midway through the year, is there a “normal” to return to?

You say hello, I say goodbye

Despite record gains in membership, credit union core deposits hit record lows last year . In fact, in the aftermath of SVB, deposits went from sideshow to center stage as members withdrew funds from legacy savings accounts and placed them in higher-yielding CDs or money market accounts and every financial institution has been scrambling for capital since.

Credit unions and community banks saw deposits flood out of the door from even the most-tenured members when the financial institute down the street offered a slightly preferable CD rate.

In truth, many of the highest-yield CDs (and money markets, to a lesser extent) have been short-term products; providing short-term benefits to the member at best, and an exacerbated deposit cycle at worst.

Acquisition first, deposits second

Unsurprising then, financial institutions are intensifying member acquisition efforts, with Gen Z and Millennials firmly in the spotlight. With a mere 5% of Millennials and 4% of Gen Z currently members, the only way is up for credit unions, but to win and retain that market will take significant investment.

Undeniably, digital transformation is a critical part of that acquisition and retention play. “Younger consumers prefer seamless digital transactions” is hardly news any longer, but with even mature payments companies like Venmo still growing, the trend also shows no sign of abating.

However, the members still need to be secured before they use your tech. One increasingly popular avenue is student lending.

Learn to earn

Gen Z—the eldest of whom is barely in their mid-20s—is just entering financial maturity but already commands an impressive $360B in purchasing power. Student lending presents a significant opportunity for financial institutions to attract and engage these young borrowers.

From boutique underwriting, loan generation and servicing, through to capturing the data that can (and should) initiate more personalized, expanded financial offers, student lending is its own ecosystem. Increasingly, credit unions and community banks are realizing its long-term growth potential.

Credit unions in particular are primed to benefit from this. As financial cooperatives, their people-before-profit mantra resonates with a Gen Z eager for social change, financial equity and institutional partners that share their values.

Long-term, today’s student loan borrower is tomorrow’s mortgage seeker or retirement planner, and this is where the digital transformation will come to the fore. By working with fintechs capable of streamlining and enhancing the financial experience through college, credit unions can create brand loyalty and stickiness that will last long beyond graduation.

There’s no denying the last two years have been difficult, and there’s little to suggest there’s blue skies ahead, but with an untapped Gen Z market crying out for student financing there’s certainly reason to be optimistic.

Education Lending
Loan Participations
Refinance and Consolidation