What student loan servicing can teach lenders about Gen Z

While many assume that the best way to reach Gen Zers is through their phones, in reality, they want a personal connection, especially regarding their financial products.

Mortgage originators need to keep in mind as the leading edge of this age group — those born between 1997 and 2012 — moves into the home buying market. They have experience from applying for student loans that has shaped their attitudes.

One thing they seem to hold dear is the desire for customer service, said Sara Parrish, president of CampusDoor, a unit of mortgage industry vendor Incenter that provides origination services for student lenders. 

Gen Zers prefer to work with originators across multiple channels, but they would rather do anything than pick up a telephone to call for help.

"But in our experience, Gen Z does appreciate a full-service concierge approach," Parrish said. "When they do get to the point of needing to pick up the phone, they want to be able to talk to somebody who's going to have all of the answers for them."

They do have loads of information at their fingertips, so when they have a question, it is not a basic one, said Parrish.

"The questions they're asking via phone, via chat, via email, even via text, are super sophisticated," Parrish continued. "Talk me through my APR? What is this fee and what does it mean? Tell me, about the repayment options and what that means for me years down the road?"

Furthermore, older generations were more willing to put up with friction in the process. Gen Zers are "a little less reliant on their parents in some ways," said Parrish. "They're doing some of their own research, and when they're submitting their applications, they're comparing us, not with other lenders, but with other technology providers like Uber and like Amazon."

Others find that perhaps the younger generation is not so independent. Javelin Strategy & Research found that most Gen Zers that have moved into homeownership are getting mortgage advice from a personal connection, the first source being their parents and the second being from a real estate broker.

"It's actually the human beings that they are face-to-face with that are driving where they get a mortgage and whether they get a mortgage," said Javelin lead analyst Babs Ryan. "When Gen Z are getting loans, they actually want, more than other age groups, human help, not digital help."

They want someone they can have a conversation with, who can help them through the process.

"There's still a very high performing proportion of under 30s living at home now, even more than four years ago before COVID," Ryan said. "Their parents are great influencers in helping them in what to do."

Regarding loan servicing, 39% said their No. 1 preference is to speak with a person, Ryan said.

Supporting a multichannel approach, "we find that in banking, there's a preference often for online over mobile for a lot of different tasks," continued Ryan.

In fact, lenders might be better off staying away from going all in on technology integrations looking to take people out of the process, Parrish noted.

"In our experience, you can create a great user experience for Gen Z borrowers with your communication, with your proactiveness, with your ability to provide great customer service and only adding the bells and whistles where it really adds value to the consumer," Parrish said.

However, from CampusDoor's experience, Gen Zers are shifting away from parental advice.

"Because these are cosigned [student] loans, the parents' opinions still matter and the parents' relationships still matter to an extent," said Parrish. "But we're seeing with every passing year, more of that decision making goes to the student borrower, and a little less to the parent, and the student borrower does most of their research online."

Gen Zers are also more rate sensitive when it comes to getting a student loan and that desire to shop is likely to follow them to home buying. Rates, more than brand loyalty, drive their decision making about where they get a loan.

"They're definitely aware of the impact of rates on the amount that they're repaying over time," said Parrish. "They're asking questions about that. It's just a whole different ball game."

Given the rising cost of getting an education, especially if someone pursues a post-graduate degree, these students are borrowing almost as much money as they would be if they bought a house.

Past research from Gen Z Planet found that 68% of this group believes homeownership is important for building wealth.

"They're just exhibiting this incredibly savvy list of behaviors," said Parrish. "That's absolutely going to pull through to their other huge life decisions and big purchases that they're making."