Borrower OutreachExpert AnalysisJan./Feb. 2024 Issue

Capturing Gen Zers’ And Millennials’ Loyalty Years Before They Buy A Home

Will 2024 be a better year for the mortgage industry than 2023?

Slower inflation and moderating interest rates could help usher in more purchase revenue, but mortgage lenders still face a major challenge. Many are invisible to the generations who will shape their future prosperity—the Gen Zers and Millennials who can’t afford a home and have never visited a mortgage lender.

Enterprising lenders, however, are finding other ways to assist and support these borrowers even before they’re ready to become homeowners. Instead of waiting for Gen Zers or Millennials to come to them, they’re reaching out with products that are more relevant to their current needs and financial situations, including private student loans and loan refinancing.

A New Way of Meeting Borrowers’ Needs

Offering these loans and refis requires a reorientation in mortgage lenders’ thinking. For decades, many lenders have focused mainly on mortgage-related products. That has limited the lifetime value of their borrower base. By offering Gen Zers a private student loan now, and a mortgage years later, that value could be much higher. The same holds true for Millennials who may refinance their student debt in order to qualify for a mortgage more quickly.

The potential market for those who can meet borrowers’ educational financing needs remains large. Americans shoulder more than $1.7 trillion in student debt. With yearly college costs often eating up more than half of Americans’ household income, it’s easy to see why demand for private student loans and refis remains strong.

Even with federal student loans, scholarships, and work study programs, it’s common for borrowers to need as much as $80,000 in private loans to complete their education—and fill gaps that their existing aid packages don’t meet. The maximum an undergraduate student can borrow in federal loans over a four-year period ranges from $31,000-$57,500. The first-year undergraduate limit is $5,500-$9,500. These amounts are far from sufficient for many students.

Eliminating Barriers

For years, though, even mortgage lenders who wanted to help with private student loans were unable to do so. Either they didn’t have the expertise or, as non-depository institutions, they couldn’t hold the loans. Now, companies are not only offering technologies to streamline and accelerate lenders’ entry into the private student loan/refi market; they have depository partners that are holding the loan products.

When students apply for a loan through their phones, tablets, or laptops, there’s a good chance that they’re encountering these comprehensive technologies. They include private-label platforms that automate everything from origination to disbursement. These make it fairly turnkey for a lender that has never offered private student loans/refis to accelerate their market entry. However, the technologies must be bolstered by human expertise. It’s important for lenders to ensure that the technology partners they’re considering are full-service and:

  • Have deep experience educating and guiding students and parents/guardians
  • Understand the regulatory, underwriting, and compliance complexities unique to this market
  • Stay attuned to Gen Zers’ and Millennials’ research habits and proactively provide the online information they need (so they never leave a lender’s website to look elsewhere)
  • Offer call center services for those young borrowers that prefer the knowledge, guidance and reassurance of a live person

Private student lending increases opportunities for mortgage companies to develop relationships with credit-worthy borrowers whose potential earning power exceeds those without college degrees. Those applying for this kind of assistance tend to have good or excellent FICO scores and strong repayment records. Over the course of a four-year education, lenders have the opportunity to bond with these future homebuyers (and parents who may co-sign) every semester. That’s eight chances to cultivate what could potentially be a decades-long partnership.

Indeed, by laying the foundation for more profitable relationships early, mortgage lenders can truly realize the full value of every individual borrower.