September 3, 2022 / VOLUME NO. 225

Meeting the Moment for Borrowers

The hiatus for federal student loan repayments is coming to an end. Are banks and their borrowers ready?

On Aug. 24, President Joe Biden announced changes to the federal student loan program, including the cancellation of some federal student loan debt. That headline number — up to $10,000 for many individuals, and up to $20,000 for Pell Grant recipients — easily captured the attention of pundits postulating on the appropriateness of forgiving any amount of student loan debt, along with pushback from others that the action wasn’t enough to be meaningful.

What bankers may miss in the debate is that federal student loans still have a firm repayment deadline, and borrowers must resume payments on their remaining debt in January 2023. After nearly three years of paused payments, borrowers will once again need to find the money in their budgets to make those payments, even at their new lower balances and monthly payments.

This is a major moment for bank customers who still have federal loans — and banks potentially have a role to play.

Some borrowers will face a readjustment period in their finances, which may have strengthened or weakened in the last three years. They may have a bigger family, or a house, or a new job. Other borrowers who earn more than $125,000 annually, or $250,000 as a household, learned that they don’t qualify for any loan cancellation and may want to reevaluate their options for refinancing.

Last year, a Federal Reserve study found that 20% of Americans who attended college still owed money for that education. Banks are on notice that some of their customers will be impacted by the end of student loan deferment and that the changes could be potentially big.

Personalization and personalized financial advice, fueled by advances in machine learning and artificial intelligence, are having a moment in retail banking. Financial institutions should know who their customers are, what’s important to them and what stresses them out; they should anticipate big moments in their customers’ lives and be ready to help. To me, this is one of those moments. Are banks ready?

• Kiah Lau Haslett, managing editor for Bank Director

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"Community banks, with far fewer dollars to spend, have to budget wisely and invest where it makes the most sense. For many, that means prioritizing new technology features and updates in areas like security, or where customers frequently interact with the bank, like payments or digital loan applications."

• Laura Alix, director of research for Bank Director

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