Financial institutions have an opportunity to empower graduates amidst a student debt crisis.
College graduates are facing more uncertainty than ever when it comes to their financial futures. Student debt feels insurmountable, and when repayments start, it can feel impossible to climb out of that hole and begin to build wealth. Banks and credit unions have an opportunity to help young customers — growing deposits and brand loyalty in the process.
According to a 2023 report from the Education Data Initiative, student debt in the U.S. totals $1.157 trillion owed by 43.8 million borrowers, with an average balance that could be more than $40,000.
The U.S. Supreme Court recently blocked the Biden Administration’s plan to forgive some student loan debt, so loan payments paused during the COVID-19 pandemic will resume in the fall. About 26 million American borrowers applied for student loan forgiveness before the program was challenged. Biden says he will continue to pursue debt relief for student borrowers.
With mountains of debt standing in the way of their future, it can be difficult for younger generations to see their way to traditional wealth builders like home ownership and a debt-free future.
Financial institutions that leverage cutting-edge tools for financial education and automated repayment can help these clients, and fintech partners can make this shift possible for banks and credit unions ready to innovate and grow. So how can financial institutions help while increasing their balance sheet, too?
Help clients and grow deposits with niche banking.
Student borrowers suffer from more than a considerable red number on their balance sheet. Studies show members of Generation Z (born between 1997 and 2012) demonstrate the lowest financial literacy of any generation, answering fewer than 50% of personal finance questions correctly. Still, they were also the most likely to have taken a course.
To attract and retain young clients, financial institutions should offer products that appeal to their interests and build knowledge, gamify repayment with integrated tools, and help grow savings while paying down debt.
One of the most efficient (and profitable) paths for local and regional banks to reach this new generation of customers is through niche banking powered by solid partnerships with cutting-edge fintech.
Consider Michigan State Federal Credit Union, which identified a large niche of alums and worked with Nymbus to bring a solution to market. AlumniFi is now available for more than 300,000 Michigan State graduates, providing them with the tools they need to help begin their financial success.
Here’s how other community and regional banks can partner with fintech to achieve similar goals:
Increased financial literacy
To help young clients learn the details of interest rates, repayment schedules, savings, and more, savvy banks will build financial literacy tools into appealing, user-centered mobile applications. These apps offer much more than balances and transfers, integrating content that appeals to and educates at once.
Integrated customer service
Young customers expect 24/7 access, of course, but they also need to know someone is there when they need more help than an app can offer. Integrate leading tools that provide independence but be prepared to offer in-person or phone-based service and advice.
Debt down, savings up
For Gen Z, gamified tools like roundups that divert a few cents on top of purchases to debt repayment or savings can be powerful reminders of the value of small steps. In-app rewards and incentives can supercharge buy-in, keeping them coming back for more.
Banks and credit unions grow when customers grow.
It’s not a new concept: when customers build wealth, the bank does too. Financial institutions can see better returns as customers pay down debt and grow their assets. There is a clear imperative for bank leaders to focus on attracting young clients and investing in their success and loyalty.
Integrating digital tools for this segment enables them to meet their debt commitments while growing their buying, investing, and saving power. As these customers grow and earn, so will their loyalty to the products and services that were dedicated to their success.
Generation Z is particularly primed to become brand advocates through word-of-mouth, social media, review sites, and all corners of the internet. This person-to-person marketing is invaluable: 92% of global consumers trust these recommendations.
Assisting borrowers through the student debt crisis is essential and noble work for our nation, economy, and those who can’t see their way out of the maze. Their success will also be necessary for your financial institution, powering new deposit growth for another generation.
More than 43 million Americans carry student loan debt, and the financial institutions that help them build wealth will benefit. To capture and retain these customers, focus on helping them succeed with engaging tools, robust customer service, and financial literacy programs delivered through cutting-edge digital and mobile platforms.