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PCBB Banc Investment Daily June 23, 2014
Banc Investment Daily
June 23, 2014

Flapping Wings Around Student Loan Debt

Over the past several years, butterfly exhibits have grown in popularity at zoos and museums across the country. People seem to enjoy watching these colorful creatures flutter their wings, sip nectar from flowers, or land unobtrusively on their shoulders. Those who would take things even further can even purchase a small habitat and raise the winged creatures in their own home in order to witness metamorphosis. Believe it or not, you can go online and get a box of caterpillars sent directly to you and then watch as they change into chrysalides and then days later emerge as butterflies--probably beats chasing them in some meadow with a net like we used to do as kids.
No matter what you did as a child, everyone is amazed the first time they see a butterfly and bankers are no exception. In fact, bankers perhaps more than other industries know just what a butterfly goes through after having to go through a business metamorphosis since the credit crisis began. Now with mobile banking, customer fickleness, regulatory crackdowns and heavy competition it just seems to go on and on.
Unlike butterflies, however, who usually live a month or so, people live well into their 90s. All along their lifecycle, people need help managing money and their business and community bankers play a pivotal role. One step along this long journey is the daunting and increasingly difficult task of ensuring your customers have saved for college and a targeted savings plan may be a good option for you to position.
It's no secret that college costs are on the rise and people are more aware than ever. Note that the most recent data from the College Board shows the average per year cost of attending a private 4Y university as a full-time student this academic year rose 3.2% to $31.7K, including room and board. A portion of this may be covered by grants, but we also recently uncovered research by Fidelity Investments that finds 53% of grandparents are helping or plan to help pay a median $25,000 for their grandchildren's college costs. Of those, about 50% said they were doing this because they did not think their own children could afford to. The simple fact is that student loan debt has skyrocketed over the years and now stands at around $1.1T as of Q1 2014, according to New York Fed data.
It certainly is problematic when students take on too much debt because it can cripple their financial stability for years to come. It's also likely to impede their ability to buy a house, a car or fund a new business venture. That has a negative effect on the economy and consequently impacts the bread-and-butter markets of community banks. In fact, a study last year by public policy organization Demos predicts the $1T in outstanding student loan debt will lead to total lifetime wealth loss of $4T for indebted households. That figure doesn't take into account the heavy impact of potential defaults either.
Suffice it to say a major regret for many parents is not having started college planning early enough. These families need advice about how best to save money now so that they don't run up endless amounts of debt. Still others would also benefit from advice on ways to find out about grants and scholarships. Your bank is well positioned to deliver experts to discuss savings options, loans and the impact of all of this on succession planning at family owned businesses.
Banks that take a consultative approach with customers in this area could stand to benefit in a number of other ways, not the least of which is helping customers avoid becoming entrapped by years of burdensome debt. Time to flutter on out of here...