The true value of a college degree for members – and credit unions

Ask a recent college graduate if earning their degree was worth it and you may be surprised at the answer you receive. According to a recent Bloomberg article, many college graduates are pessimistic about the return on their investment in a degree. The growing costs of paying for college, coupled with the misconception that graduates should be pulling a hefty salary straight out of school, are leaving consumers skeptical about the value of a college education. Perhaps it’s falling into the trap of today’s instant gratification society that sways some to think like this. Yet time and time again, data show that earning a college degree is very well worth it, and that graduates will see the benefit of a degree over time.

Here are the facts:

• The difference in the average income level of someone at least 25 years old with a bachelor’s degree is on average $30,264 as opposed to the salary of a high school graduate.¹
• The unemployment rate is significantly lower for those with a bachelor’s degree versus a high school diploma (3.8 percent versus 12.2 percent, respectively). The same is true of those living in poverty; 21.8 percent of high school graduates live at or below the poverty line, while only 5.8 percent of those with a bachelor’s degree or higher do. ²
• Over the past four decades, those with a bachelor’s degree have tended to earn 56 percent more than high school graduates, and those with an associate’s degree have tended to earn 21 percent more than high school graduates. ³
• A Pew Research study found that on some key measures, the largest and most striking disparities between college graduates and those with less education surface in the Millennial generation. Millennials with at least a Bachelor’s Degree earn $17,500 more than Millennials with a high school education, a wage gap that is significantly larger than years prior, and continuing to grow. (Supporting Chart here.)

As strong as they may be, these facts don’t mean every college graduate will reach their maximum earning potential the moment they have their diploma in hand. These numbers reflect an average over time, and entry level positions are just that – an entry into the working world and a chance to use the knowledge gained in college to advance a career.

In fact, employed Millennial college graduates are more likely than their peers with a high school diploma or less education to say their job is a stepping stone to a more desired position that furthers their career (86 percent vs. 57 percent). In contrast, Millennials with a high school diploma or less are about three times as likely as college graduates to say their work is “just a job to get by” (42 percent vs. 14 percent).²

The Impact on Student Lending

These facts are important for lenders to remember as they help families sort out their options for funding a valuable college education. The cost of tuition can seem staggering to most, as many Americans will experience their higher education venture as the biggest investment they may make – with the exception of their home mortgage. It’s daunting. And coupled with the media’s bleak portrayal of student lending in recent years, many consumers are quite leery of borrowing money for college. Stepping up, this is where credit unions can make a difference, however.

When families turn to their financial institution to help them through major life events, they are seeking experts who can answer their questions and put their minds at ease. What sets credit unions apart from other lenders are personalized solutions for their members and education about their financial decisions. That education extends beyond the simple math of a loan. It includes teaching members about credit scores, repayment options, and a true understanding of the loan agreement into which they enter.

CU Student Choice, for instance, works with online financial literacy resource iGrad assisting students and their families to make effective personal finance, student loan, and career decisions. This platform – an online portal featuring financial literacy tools for college students and recent graduates – helps before, during, and after the college years, providing resources and information on schools, career paths, budgeting, workplace expectations – and even an interactive job bank to help graduates find employment in cities across the country.

Both organizations have worked to design and deploy two unique elements beyond the standard platform. The first is an interactive module that prospective borrowers may complete before a loan application is submitted – which ensures that students and parents understand college and loans costs, as well as career salary expectations. The second module is designed to help borrowers effectively enter their loan-repayment cycles.

Educating borrowers about the value of obtaining a college degree is also crucial so they understand the impact of the investment they’re making and clear up any misconceptions about private student loans. Increasing negativity revolving around student lending issues has on many occasions overshadowed the true benefit of the education itself. Again, the credit union can provide members who may be distrustful of traveling down the loan road with a more educated view that results in a better decision – either way. This lending education from a credit union further positions them as a trusted resource for any financial decision. And providing a student with valuable advice and possibly a college loan to boot, sets up the credit union with an active member for all of life’s major decisions following graduation.

Building Future Relationships

By offering this sound advice and gaining the trust of their members, credit unions have an opportunity to build lasting relationships with a younger demographic. Students leaving home for the first time may also need a checking account or their first credit card. New graduates could be looking for a car loan. For one Student Choice client credit union that has offered the program for five years, a review of their borrowers in repayment showed that:

• 63% had a checking account
• 22% had a credit card
• 16% had an auto loan

Providing a private student loan option for families isn’t just about paying for college; it’s also about building a solid foundation for a strong financial future. It’s not only an investment in education for the student’s future career and success but an investment for the credit union – again, positioning the institution as a trusted resource to provide further services through life’s financially-related milestones. Why wouldn’t any credit union want to position itself with this opportunity?

¹ U.S. Bureau of Labor Statistics

² Pew Research Center

³ Federal Reserve Bank of New York