Survey Also Finds That While Gen Z and Millennials are Less Likely to be Loyal to their Bank than Older Generations, 50% Say They Would Not Bank with Google and Amazon
New York, NY, January 31, 2020 – As the burden of student debt continues to strain the resources of younger Americans, many consumers lack sufficient information to make prudent decisions about the education lending process. While a majority of former college students have comparison-shopped for cars, clothes or insurance, only 8% said they did so when it came to finding an education loan.
The survey of more than 1,000 US adults who have attended college looked at the relationship to debt across three age groups and revealed considerable misinformation about student debt. The study was commissioned by LendKey Technologies, an end-to-end digital lending partner to hundreds of banks and credit unions, and carried out by YouGov.
Borrowers Need More Financial Literacy Around Student Loans
Across age and gender lines, few respondents said they had searched for the best rate and terms for a student loan, with just 16% of those 18-34, 9% of those 35-54 and 3% of those 55 and older having “shopped around.” By contrast, two-thirds overall comparison- shopped for cars, 60% for insurance and 57% for vacations.
The data suggests students need greater understanding of the student loan process: 41% said they believed loans come from schools themselves, while 14% incorrectly guessed angel investors are providing loans to the public. One in five guessed that private and individual investors provide loans, which is partially true, while almost two-thirds correctly answered that large banks offer student loans. Only half of former or current students correctly said credit unions offer student loans.
“Far too few consumers take the time to educate themselves about student loans, despite the fact that they may incur thousands of dollars in unwarranted education loan interest that may impact their financial future for years, perhaps decades, to come,” said Vince Passione, CEO and founder of LendKey. “This is one of the few asset classes where consumers have not been taught to shop around.”
The survey also found that Millennial and Gen Z borrowers were more likely than older peers to believe that a government program will eventually relieve their burden. Thirty-seven percent said they were hopeful, compared with 31% of those 35-54 and 29% of those 55+. Overall, about half (47%) are skeptical about such proposals. A substantial number, 19%, said they do not know enough about the topic.
Consumers Consider Buying a Home a Priority, But May Be Unsure About the Down Payment
The survey also looked at spending priorities and the future outlook for those holding student debt. Only 6% of those surveyed agreed with the statement “my generation is more frugal than older and younger generations.” But when asked to list ways in which they would spend a $35,000 windfall, 38% said one of their priorities would be to apply the funds toward a new home, while 33% included saving the money for retirement among their priorities. A roughly equal percentage (35%) prioritized paying down student debt.
Only 13% of respondents said they would use the money to buy a luxury car, while 19% said they’d consider taking the vacation of a lifetime.
“The ability to purchase a home is closely aligned with the pay-down of a student loan,” said Passione. “The fact that student loan borrowers see home buying as a priority should confirm the lifetime value of both existing and prospective customers to banks and credit unions.”
Respondents also were unsure how much cash they’d need to put down in order to feel comfortable buying a house. One in five said they didn’t know, including 29% of millennial and Gen Z respondents. Only 23% said they’d be comfortable putting down more than the standard 20% down-payment for a traditional mortgage.
Bank Loyalty Increases with Age
As a useful insight to financial institutions appealing to the unbanked generation, the survey found loyalty increases with age: Millennial and Gen Z respondents were less likely (42%) than those 35-54 (52%) or 55+ (57%) to consider themselves loyal to the institution that holds their primary checking account. Women were slightly more loyal to banks than men (54% versus 49%). Overall, 52% of respondents said they were loyal and 37% said they were not.
Despite the growing emphasis on technology and mobile banking to improve customer experience, only about one in five cited technology as a motivation for switching banks. Better fees and interest rates would entice 57% of consumers to switch, followed by customer service (39%). Given the highly publicized data breaches at banks and other institutions, cybersecurity was cited as a primary migration factor by more than a quarter of respondents.
Skeptical of Banking with Big Tech Companies
Sixty-one percent of respondents would not turn to Google or Amazon for their banking needs. That includes half of millennial and Gen Z respondents, 55% of Generation X and 71% of those over 55. Overall only 11% said they would bank with Google and 12% with Amazon.
The survey also found that student loans are impacting young adults’ relationship decisions. About one-third of respondents between 18-34 said they might postpone marriage — or had already done so — until student debt is paid off. That number shrank among older respondents, with 17% of those 35-54 and 10% of those 55+ (the latter least likely to hold student debt.)
Debt seems to affect the choice of partners, too. A third of millennial and Gen Z respondents said student or credit card balances could affect their choice of a spouse, depending on the sum, though only 4% said debt was a dealbreaker. Forty-five percent across age groups, however, said love conquers all and debt would not factor into marital decisions.
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 1,037 adults who have ever attended college. Fieldwork was undertaken between December 9-13, 2019. The survey was carried out online.
Dukas Linden Public Relations