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A lot of people are talking about student loans right now, specifically about federal student loan forgiveness and what it means. But there's still plenty going on outside of forgiveness, with notable signs the student lending landscape may be changing back to pre-pandemic patterns.
Last year saw the lowest year-over-year increase in student loan debt in a decade, even with a 2.7% increase in 2021 over 2020, as reported by Sound Dollar. This isn't a cause for concern, however, because it was attributable in large part to the pandemic and the many relief efforts put in place to alleviate economic burdens during that time such as pauses in student loan repayment.
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Another explanation for the decrease is the number of students who stayed home instead of going away to school – whether because the school itself wasn't welcoming students in person or due to a personal choice made by students. Considering room and board costs average around $11-12,000 per year according to Edmit, it naturally caused the average loan size to decrease.
These explanations don't mean we shouldn't keep an eye on that decrease, but what we've witnessed is that borrowers have not actually decreased and demand still remains high.
Rising tuition costs mean if people want a higher education, they will likely need help to finance it.
We're already seeing an increase in loan amounts more consistent with pre-pandemic totals. Students are returning to campuses and need room and board again. Colleges and universities find themselves facing higher labor and supply costs so they're increasing tuition costs to keep up, sometimes as much as 4% or more, according to a Washington Post report.
There's also a great opportunity for student loan refinancing, especially with a potential end to the pause on student loan repayments at the end of the year. According to a recent Bankrate and Best Colleges survey, around 20% of borrowers don't have a plan for resuming their payments, and 75% of adults with student loans said it would hurt them financially.
But while many credit unions focus refinancing marketing efforts toward 22-25-year-olds just leaving school, they may overlook how it can also help their established member borrowers, seeing that borrowers over 50 carry 22% of the $1.6 trillion total of student loan debt (source: AARP).
Perhaps surprising to some, these older borrowers generally hold significantly higher debt amounts than their younger counterparts, on average around $47,000 as compared to around $29,000 (source: Fortune). Interest rates were much higher in the 1980s and 1990s, so their balances grew much faster. As wages haven't kept up with the cost of living, these borrowers still find themselves paying off loans from decades earlier.
Another reason is that many have taken out student loans to help their child or grandchild. In 1989, pre-retirees held an average of only $600 in education loans, but that amount grew to $8,000 by 2013, a LIMRA Secure Retirement Institute study found.
Whatever the reason for holding student loan debt, these borrowers are in danger of not having significant retirement plans, and solutions to help them with those payments could be invaluable.
The lessons here are that student lending is not going away anytime soon, and between private student loans and student loan refinancing, there's a significant opportunity for credit unions to help their members.
Ryan Giffin Ryan Giffin is SVP, Client Success for the Cincinnati, Ohio-based lending platform and network provider LendKey.
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