By Roy Urrico
Finopotamus aims to highlight white papers, surveys, analyses and reports that provide a glimpse as to what is taking place and/or impacting credit unions and other organizations in the financial services industry.
Plano, Texas-based Alkami Technology Inc., a cloud-based digital banking solutions provider for credit unions and banks, found the number of student loan payments grew 127% in October 2023, after the pause on federally-backed student loans ended, compared to the previous month. The study found that half of new student loan monthly payments in October were over $200, with the median new student loan monthly payment being $206.
Mark Leher, data and marketing product director for Alkami, spoke with Finopotamus about how credit unions and other financial institutions can analyze accountholder’s transaction data to compare the size of a resumed student loan payment with a borrower’s other expenses, thereby determining the members for who resumed student loan payments could be a financial hardship.
Alkami Data and Marketing Solutions uses financial institutions' core data to create insights for each account holder, including insights about payments made to loan products such as credit cards, mortgages, auto loans, HELOCS, and student loans.
Alkami Findings
The Alkami report utilized data sourced from a panel of 22 financial institutions (FIs) with more than 2.5 million account holders and over 1.5 billion transactions. The study learned the resumption of student loan payments put even further strain on borrowers, as they faced more volatile economic conditions than before the federal student loan repayment pause, paired with a new monthly expense.
As a benchmark, the data showed that the same group had a median monthly credit card payment of $349, which suggested that a $206 increase in monthly expenses driven by the resumption of student loan repayments might create a significant financial commitment for these borrowers.
“Not all student loan borrowers were affected the same way after the pause on student loan payments came to an end,” said Leher. He added, “The resumption of payments means many are now being burdened with a new monthly expense amidst an inflationary environment. Some borrowers are able to service the resumed payments, but discretionary income – and therefore spending – is impacted. Other borrowers are now scrambling to meet the payment, and may be increasing debt in other areas to compensate.”
Using Transaction Data to Help
Credit unions and other financial institutions, Leher noted, need to understand and address how the end of the student loan pause may put additional financial strain on borrowers and create unique challenges for account holders. Finopotamus asked Leher about the importance of credit unions analyzing members' transaction data to compare the size of a resumed student loan payment with a borrower’s other expenses.
Leher explained, “Comparing a resumed student loan payment to the rest of a borrower’s other expenses can contextualize the impact that this additional payment has on their overall budget. For some people, an additional $200 per month payment may be no big deal. For others, a resumed $200 per month payment may be a hardship.”
Finopotamus asked: How can this determine the members’ future financial hardship? “If a new payment is a relatively larger part of an existing budget, then there is a bigger chance that it may create a financial hardship,” replied Leher. Data he noted illuminates this. “For example, we may see that somebody who has a resumed student loan payment sees a larger credit card payment a few months later, meaning credit cards are helping that account holder cover the payment.”
Leher explained the reason knowing the impact is important for credit unions is that accountholders want a financial institution that knows them and that personalizes interactions and messaging. “Understanding data is one key way that financial institutions can scale delivering personalized relationships to all account holders.”
He added, “If FIs do not make the effort, accountholders can, and will, take their money elsewhere. Competition for deposits is fierce and megabanks, fintechs, and even big tech companies like Apple are all in on the game.”