Thousands of Credit Unions Missing the Boat on Student LoansShare:
Nationwide, outstanding student loan debt now sits at $1.3 trillion. Spread out across 43 million borrowers and impacting one in five homes, it is second only to mortgages in terms of consumer financing. Student loan debt is becoming the new norm for young adults, and thousands of credit unions are missing out on an opportunity of epic proportions.
It may seem daunting to dip your toes into the student lending pool, but the basics are the same as most other lending initiatives. Focus on your members and their individual needs so you can point students and their families in the right direction. Here are the key pieces to focus on as you begin (or expand) your private student loan portfoilio:
A college degree comes with significant benefits, but students and families need to understand how to responsibly pay for a college education. Prospective borrowers should be educated on the importance of finding “free money” (grants and scholarships) and low cost funding options before applying for private loans. Of course, it’s also important to show families why your private student loan is a smart choice if that is, indeed, the route they choose to go.
Focus on the credit union philosophy of putting people before profits, and emphasize details like flexible repayment terms and payment options. It’s not about bad-mouthing “the other guy” – it’s about showing members they can trust you with their future.
School certification engages the college financial aid office for verification of enrollment and validation of the loan amount. This ensures the loan amount is not more than the cost of attendance and is disbursed directly to the school. It also allows financial aid officials to counsel the family on available options for reducing costs and utilizing lower-cost alternatives before relying on private student loans.
It is vital to use underwriting criteria that factors in credit score and history, encourages the use of a co-borrower, and takes into account the type of school. These items have a major impact on repayment. Data from several of the largest private student lenders in America show that private loans with a focus on these items perform better than federal programs, and result in fewer delinquencies and charge offs.
Offering longer repayment periods and graduated repayment options helps support recent graduates who might be underemployed for a period of time. Young adults can easily be overwhelmed by entering the workforce and paying bills. If a student loan payment is unmanageable and borrowers don’t understand the consequences of default, it can be all too appealing for them to simply stop making payments.
Lending to students and families within your existing footprint leads to a genuine opportunity for long-term relationships and a younger membership. You know your communities and their residents; listen to their needs. Remember word of mouth is always crucial to building business. When you are able to help members and their families through a major life change, you’re building a valued relationship that will be shared with those around them.
Time to Get On Board
Over the past several years, hundreds of credit unions have entered the private student lending market. By focusing on several important pillars, these credit unions are delivering a valuable solution to borrowers while also returning positive results to their bottom line. By focusing on these pillars, you can build a strong student loan program with a positive reputation.
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