Student Loan Customers: A Lifetime of Opportunity

The private student loan market represents a significant and growing opportunity for credit unions and banks. Demand for private student loans is expected to increase as college tuition continues to rise, and many borrowers seek an alternative to the loan amount caps of a federal loan. Private student loans enable lenders to improve yields and diversify assets, while standard underwriting practices help keep the risk of default in check as compared to federal loans with little underwriting standards.

One of the strongest arguments in favor of adding private student loans to a lender’s portfolio is the lifetime value of the consumer relationships. According to a recent study from research firm Cornerstone Advisors and LendKey, 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.

Lenders are also poised to position student lending as an entry-level product to attract new members or customers: 60% of the borrowers who applied for a student loan from a lender other than their primary institution went on to add further products.

The opportunity to cross-sell student loan borrowers into additional products is meaningful. The Cornerstone study estimates that two-thirds of consumers who take out student loans from their primary bank or credit union subsequently add other products. For example:

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

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. These students may be attracted by promotions such as a “free” deposit to their account.     

After graduation, consumer’s 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 generation customers because the messages are a “hard sell” and heavily product-oriented. This generation of customers is likely to be more receptive to messages that emphasize education on the value being provided, 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 speakers 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. 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 value.

Download our flowchart to see where your institution stands when cross-promoting products. 

Learn more about how LendKey works with hundreds of financial institutions to enable digital lending here.