Banks pitch refis to generation buried in student debt

Now standing at a new record of $1.5 trillion, U.S. student loan debt has come to serve as a stand-in for delayed adulthood — and postponed purchases of big-ticket items like homes and cars. But increasingly, banks are viewing it as a chance to cultivate the next generation of customers.

Help millennials pay down that debt faster — by refinancing higher-cost federal loans, for example — and you can nurture long-term loyalty among a customer set that still has a lifetime of financial choices ahead of it, the thinking goes. A forthcoming marketing campaign from Fifth Third Bancorp, for example, plays off the angst many millennials feel about their student loans and encourages them to download the bank’s repayment app.

“This is integral to our consumer household growth strategy,” said Matt Jauchius, Fifth Third’s chief marketing officer. “Millennials are more likely to experience more life events, and life events are often what cause people to shop for a new bank. As a bank, we need to target the growth generation and we need to target people who might be looking for new bank accounts.”

For millennial customers, there may be no greater financial pain point than student loan debt, which has now doubled since mid-2009. According to the Department of Education, more than 2.7 million borrowers owe over $100,000 and roughly 700,000 of those borrowers owe more than $200,000.

Following the lead of fintech lenders like SoFi, a number of banks now offer student loan refinancing as a means of winning consumers in their 20s and 30s. Citizens Financial Group and First Republic Bank directly refinance student debt, while Fifth Third partners with a fintech lender to offer that option to its customers.

Steven Reider, president of the bank marketing firm Bancography, said he has encouraged banks, especially those that deal with high-net-worth clients, to consider student loan refinancing to generate business among the emerging affluent. He noted that doctors and lawyers often graduate with six figures' worth of debt, but they also have high earning potential.

“The goal is generating loyalty among a customer segment that has very lucrative long-term potential,” Reider said. “It’s both a desire to tap into that [future earning potential] and the belief that saving somebody from a pretty onerous loan payment probably brings pretty significant loyalty.”

One example of this is First Republic, in San Francisco, which has made its name serving a wealthier clientele. To connect with the next group of high earners, the $96 billion-asset bank offers student loan refinancing to midcareer professionals with at least $40,000 in debt.

First Republic pairs those clients with millennial-aged relationship managers who it hopes will one day help that client navigate the purchase of a home or business.

Student loan refinancing has also been central to Citizens’ millennial strategy, said Christine Roberts, its head of student lending.

For many millennials, the financial crisis and recession happened during their formative financial years, so they do not always think of banks as “the good guys.” Offering them help with a heavy debt load gives Citizens a chance to fill that role, she said.

“We believe that if we’re able to help them with their student debt, then that earns us the right to start the rest of the conversation,” Roberts said. “If you save an average of $200 a month, what are you going to do with that $200? How do you start using that money?”

But it takes a lot of work to establish a new business refinancing student loans, which is why others have partnered with fintechs to offer their customers some kind of student loan solution.

The $142 billion-asset Fifth Third recently partnered with the fintech lender CommonBond to offer its customers a student loan refinance product.

The Cincinnati bank also developed and launched its own student loan repayment app last year. Called Momentum, the app rounds up a customer’s debit card purchases and puts the excess cash towards their student loan.

Now, Fifth Third wants to boost downloads of Momentum with a new campaign set to launch at the end of December. To kick off, the bank showcased the story of Jasmin Ford, 30, a nurse and single mother with roughly $150,000 in student debt — and it paid off her debt.

Fifth Third customers who download and activate the app during the promotion will be entered into a drawing for one of two shots to have their own debt paid by the bank, up to $39,000.

Jauchius said the bank chose Ford, an existing customer, because many millennials can relate to her story of juggling two jobs with child care and still not seeing an end to her debt. He hopes people will see Ford’s story, imagine having their own loans paid off, and then download the app.

“We really want to define a very positive emotional event that we can celebrate to get people to connect to this product we can provide for them,” he said of the campaign.

Setting up Fifth Third as the “good guy” could be a smart strategy, especially considering many millennials have negative feelings towards their student loan servicers, Reider said.

“The underlying theme is less about the product and more about positioning the institution positively,” he said. “There’s a significant energy around the issue of student loans. If you can be on the right side of that issue, I think it’s a really positive marketing message.”