By Michael Brown
LendEDU recently published its fifth annual Student Loan Debt by School by State Report, a deep dive into student loan debt figures for the Class of 2019 at 475 U.S. colleges and universities, and the numbers are, unsurprisingly, bad.
For the aforementioned graduating class, the average student loan borrower left his or her college campus with $29,076 in student loan debt. This was an increase of $511 from LendEDU’s report on the Class of 2018 that had the average debt per borrower figure at $28,565.
State-by-state and school-by-school figures from the most recent LendEDU student loan debt report paint an even bleaker picture.
For example, the average borrower from Connecticut owes a staggering $41,579, while borrowers from New Hampshire ($41,511), Pennsylvania ($38,521), Delaware ($37,447), and Maine ($36,339) were not far behind.
And on a school basis, the LendEDU report found student loan borrowers at institutions like the New York School of Interior Design ($65,401), MCPHS University ($58,012), Immaculata University ($55,126), The New School for Public Engagement ($54,566), and The Culinary Institute of America ($51,200) will likely be repaying their student loan debt well into their thirties.
Another recent report from LendEDU found the national student loan default rate to be at 9.70%, and a separate study by The Brookings Institute predicted a “looming student loan default crisis” could have the default rate as high as 40% by 2023.
If you thought student loan debt stats in this country couldn’t read any worse, you should also know the national outstanding student loan debt balance currently sits at $1.67 trillion, which makes student loan debt the second largest form of consumer debt behind only that from mortgages.
In summation, our country continues to let the student loan debt crisis spiral out of control, and the macro-economic impact this may have on a generation of Americans could be severe.
Committing at least several hundred dollars each month towards student loan debt for roughly a decade, how will young consumers become homeowners, start families, invest in the market, and move forward financially?
These questions should be of concern to credit unions as they could see demand for their financial products drop in lockstep with a growing student loan debt crisis that limits young Americans.
On their part, credit unions can be proactive in their response to the student loan crisis by implementing four strategies.
Prioritize the Student Loan Refinance Market
First, credit unions should laser in on the student loan refinance market as an area for growth.
With so many student loan borrowers having a student loan debt balance approaching six figures, the student loan refinance market is always going to be a strong vertical to get into. While credit unions may lose some business from young Americans in areas like mortgages, they can make up that ground by prioritizing their refinancing business.
Plus, credit unions that offer student loan refinancing can be of great assistance to student loan borrowers if they are able to help them save money by possibly lowering their student loan interest rate, which could go a long way towards maintaining these consumers as customers for other products.
Consider Income-Share Agreements
Income-share agreements are a relatively new financial product and involve an institution, like a credit union, financing a prospective college student’s education in return for owning a small percentage of that student’s future income until debts are settled.
Because this is a fairly new idea, credit unions have an opportunity to get in on the ground floor and become a leader in the space. The key will be finding soon-to-be college students that have plans to attain a degree that leads to a high-paying job, like finance or engineering.
This way, credit unions will be able to make back their initial investment and even make some profit.
Launching an income-share agreement can be a win-win for both parties as the student won’t take on any student loan debt and the credit union perhaps can gain a customer for life while also making a bit of money off their original investment.
Launch a Debit Card Round-Up Product
Not exactly a new concept, a “round-up” debit card involves rounding up any purchases made with a debit card to the next dollar amount and automatically using that “round-up” change for something like investments, retirement savings, or paying back student loan debt.
For example, a student loan borrower buys a coffee for $3.05 then 95 cents is put towards that borrower’s student loan debt balance.
Credit unions could definitely get involved with this type of financial product that will not only sign up more bank accounts, especially amongst borrowers looking to repay student debt by any means possible, but also actively help young consumers chip away at their student loan debt.
Offer a Credit Card With a Student Loan Repayment Reward to Current Members
Finally, credit unions should also consider offering a credit card to existing members that are repaying student loan debt.
The main benefit of this credit card would be a 1.5% reward for every purchase that automatically goes towards the borrower’s student loan debt balance. For example, if the consumer goes out to dinner and spends $100 on the credit card, $1.50 is automatically put towards their debt balance.
This is a final innovative strategy that credit unions could implement in response to the ballooning student loan debt crisis as a way to not only help customers repay their student loan debt more efficiently, but also earn the loyalty of customers who will appreciate the effort put forth by their credit unions to eliminate student debt.
Michael Brown is director of communications with LendEDU.