By Evan Sparks
Since the financial crisis, bankers have largely and understandably left the student loan market behind. Around that time, the Department of Education began vastly increasing the federal role in the market, growing its portfolio of outstanding loans from $500 billion in 2007 to $1.2 trillion in 2016. (If DOE were a bank, it would be the fifth-largest in America.) Today, fewer than 10 percent of outstanding student loans are non-federal—that is, private.
But to paraphrase an old quotation: “You may not be interested in student debt, but student debt is definitely interested in you.”
Today, more than 44 million Americans across all generations hold $1.3 trillion in student debt—the largest single category of debt after mortgages, and a level more than five times what it was in 2004. While Americans of all ages hold student debt, it is concentrated among more recent college graduates, in particular the millennial generation. Seven in 10 millennial graduates leave college with student debt, and those with debt have an average balance of nearly $29,000. The average student loan balance at graduation has doubled since 2003 and shows little sign of easing up.
Every dollar that student borrowers put toward repaying their loans is a dollar that can’t go to their other financial goals. For example, 63 percent of millennials believe student debt is preventing them from buying a car or similar large purchase. Three-quarters believe it is preventing them from buying a house.
Saving for a down payment or retirement is similarly daunting, since college-educated millennials spend nearly one-fifth of their salaries on student loans. And the burden of debt service can prevent a young person from taking a risk to start a new business. Student debt is delaying—in some cases indefinitely—young Americans’ participation in core bank products such as mortgages, credit cards, auto loans and business loans.
Student debt levels also drive workforce decisions, and employers can stand apart by offering student loan paydown benefits to their team members. Only 4 percent of employers nationwide offer such a benefit, but 8 in 10 millennials say such a benefit would be a “deciding factor” or “make a considerable impact” on their decision to join or remain with a company.
The American Bankers Association recently endorsed Gradifi, a subsidiary of San Francisco-based First Republic Bank, for its turnkey student loan paydown program, which allows banks to make contributions directly to their employees’ student debt balances. (Through ABA’s endorsement, ABA member banks can offer Gradifi’s services to their own commercial customers at ABA member pricing.)
There’s a customer-facing business case for offering these benefits too. According to a Morning Consult survey, two-thirds of Americans would be more likely to recommend a company if they knew it helped its employees pay down their debt.
Bankers can also educate their frontline bank staff about the student debt landscape so that they can provide insights to customers. From offering pre-origination counseling and advice to giving post-graduation tips on consolidation, refinancing and repayment plans, bankers can build their brand as trusted advisers, speed up repayment cycles and help their customers engage more deeply with the bank’s credit products.
Bankers didn’t create the student debt crisis. But they can help in ways that provided targeted support to employees and customers alike.
