Helping Members Out of the Student Debt Sinkhole07.16.2018
“You must spend money to make money.”
The maxim has stood the test of time when it comes to Americans’ attitude toward investing for future rewards. Maybe it also helps to explain why so many college students take on staggering amounts of debt to pay for their education: they hope their huge obligations will result in well-paying jobs in the future.
Recognizing that credit unions are in a prime position to help their members and employees navigate this crisis, MEMBERS Development Company has been partnering with CFSI on this issue. At our Winter 2018 Owner Meeting, CFSI shed light on what’s happening in the student-loan market – some of which is, frankly, a little scary.
As Chart A shows, the average 2016 college graduate carried a staggering $37,000 in debt upon graduation, and 44 million Americans currently have outstanding student loans. The total U.S. student-debt load is $1.48 trillion, second only to mortgages.
Is a Degree Worth It?
Additional research by Pew Research Center found that, in 2014, millennials holding at least a bachelor’s degree earned an average of $45,500/year. Those having only a two-year degree or some college were found to earn only $30,000, and high school graduates only earned $28,000. The same study also showed the unemployment rate for high school graduates was 12.2% – more than three times the rate of 3.8% for those having at least a bachelor’s degree.
In its 2011 report, “The College Payoff,” the Center on Education and the Workforce at Georgetown University similarly found that a bachelor’s degree is worth $2.8 million on average over a lifetime.
So yes, a college education offers higher earning power. But at what cost? As Chart B illustrates, tuition costs are escalating at alarming rates, making that degree ever more costly.
Total college debt has skyrocketed faster than any other financial asset class since the 2008-09 recession; only mortgage debt is higher. To young people wanting to start a profitable career, it’s a crushing burden, one that is forcing them to make different life choices than they would otherwise. A survey conducted by the National Association of Realtors® and American Student Assistance® reveals that millennials burdened with student-loans say they are waiting between three and seven years longer to purchase a home than they would without student loans to repay. Further, 41% are postponing marriage, 55% delay having children and 86% have made career sacrifices. Even more frightening for the future is that more than half (55%) are putting off saving for retirement.
Having a student loan burden affects your members, their financial lives and because of the choices it’s forcing them to make, the communities they live in.
What Can We Do?
Credit union members are at different life stages in terms of college financing, so there’s no one-size-fits-all solution. In MDC’s research, we’ve found that credit unions need to offer debt-relief services that are relevant to members whether they are pre-college, in school or have already graduated. Here are some ideas:
- Planning. Encourage student members to prepare for college early and offer educational tools to guide them through the process. Sadly, 65% of borrowers say they don’t understand the terms of their student loans, and 40% say they weren’t offered counseling from their future school. Help your members by ensuring that they have the information needed to make informed choices.
- Private student-loan origination and refinancing. Demand for bridge financing for higher education will continue. Look at options like partnering with an in-market provider to offer a sustainable loan origination and refinance program.
- Automated repayment tools. Tech-savvy millennials want financial tools that help them reduce their financial burden without having to think about it. In addition to automatic payments, consider enabling borrowers to pay a little extra each month that goes directly to the loan principal.
- Employer-based repayment programs. Most Americans have anxiety about their financial lives, and that affects their work. In fact, 80% of employees consider their student loans to be a significant stressor. Ease the burden by offering student-loan assistance as an employee benefit.
- Homeownership and student debt. Healthy communities depend on homeowners who feel invested in their neighborhoods, but 63% of borrowers with student loans delay buying a home. Offer a home-loan product with a lower down payment to help creditworthy borrowers, and consider making lump-sum payments to members’ student loans when they take out a mortgage loan.
The student-debt crisis is having a detrimental impact on members and our communities. Offering solutions is critical not only to members' financial health but, because of the stress it causes, to physical health as well. Whether it’s helping plan for college costs, recommending refinancing plans or finding ways to make payments less painful, credit unions are well-positioned to help members deal with college costs.
Sarah D. Lietz is vice president of owner engagement for MEMBERS Development Company, a network of large credit unions that undertakes meaningful research and development projects.