Pub. 4 2016 Issue 4

Issue 4. 2016 5 E-mail Rob Nichols at nichols@aba.com . M ore than almost any other issue, student debt is driving whether and how your younger cus- tomers engage with your bank. With more than $1.26 trillion in outstanding student loans—nearly five times what it was in 2004—and seven in 10 of new college graduates having some amount of student debt, a huge share of your customer base is financially strapped. The average recent college graduate spends nearly one-fifth of her salary on repaying debt, and most expect to have student loan debt well into their 40s. Sixty-three percent say their debt pre- vents them from buying a car or similar- ly large purchase, and 75 percent say it hinders them from saving for and buying a home. High student debt levels also limit young people’s ability to take on debt to start and grow small business- es. And given the outsize role of small businesses in creating jobs, the student debt wave could be washing away future economic growth and opportunities. How will young Americans move into the financial products that are the bread and butter of relationship banking— home loans, HELOCs, small business loans, credit cards and car loans—if they are spending so much to repay their college or grad school debt? Ultimately, many of them won’t. Imagine the eco- nomic growth that could be unleashed if young Americans had hundreds of bil- lions of extra dollars to invest in starting businesses, to save for their futures and to buy new homes and cars. Banks had nothing to do with the quintupling of student debt, which took place over a period when the federal government essentially took over the student loan market. But this debt is How Banks Can Tackle the Student Debt Crisis By Rob Nichols, President and CEO, American Bankers Association preventing our young customers and employees from achieving their fi- nancial goals and developing deeper, lifelong relationships with their banks. We need to act. First, we are encouraging companies to help their employees tackle their debt. It can be hard to justify saving for retire- ment when you have tens of thousands of dollars outstanding at 8 percent. Paying down debt offers the surest return many young Americans can find in the market, and it’s a great way to attract—and retain—young talent. At the American Bankers Association, we recently launched a student debt repayment benefit, contributing up to $1,200 per year toward any employee’s student loans. Second, ABA, with the assistance of our Endorsed Solutions Banker Adviso- ry Council, is evaluating companies that offer student debt repayment benefit solutions that banks can offer to their employees. While just 4 percent of em- ployers nationwide offer such a benefit, more than 80 percent of millennials say this kind of benefit would be a “decid- ing factor” or make a “considerable impact” in whether they take a job or stay with an employer. Third, we are exploring legislation to change the way student debt repay- ment is taxed—with a goal of helping borrowers get out of debt sooner so they can more fully engage with you. When the new Congress convenes, we will be working with lawmakers to develop this proposal. Additionally, we are training bankers and offering resources for our members’ customers to help them understand student debt and its implications—and learn what restructuring and refinancing options might be available to them. Student debt and the cost of college are the single biggest financial worry for Americans under 40. In partnership with ABA and your state associations, America’s banks are tackling this prob- lem and positioning student borrowers to make the transition to adulthood a little sooner. n WASHINGTON UPDATE