Credit Unions Positioning to Take Advantage of Student Loan Opportunities
For credit unions offering private student loans, opportunity is the one common word they are all shouting.
Now in the peak lending season, some credit unions are beginning to explore the loan product this year, and credit unions that have been offering it for the past few years are now better positioned to take advantage of the opportunity.
UW Credit Union in Madison, Wis., which serves students and faculty at the University of Wisconsin, recently announced a new private student loan program and the creation of a student lending CUSO, CU Campus Resources.
The credit union previously offered its members a combination of private student loans through its own program and federal student loans through the Federal Family Education Loan Program. With the elimination of FFELP on July 1, UW Credit Union shifted its focus to its private loan program.
"The elimination of FFELP was a bummer," said Mike Long, executive vice president/chief credit officer at UW CU. "We loved serving schools and students with a private and federal package deal."
One reason for starting the CUSO, Long added, was that as an early provider of student loans, UW CU has provided a lot of counsel over the years to other credit unions looking to get into that market.
The credit union had to switch to a new technology solution provider for its program and chose Cology Inc., which provides the core processing system and back-office support for the new private loan program.
"We wanted to provide better counsel and guidance other than just telling a credit union what to do and where to go," Long said. "Private student loans are a growth product because of the rise in tuition. There will be plenty of volume to go around over the next few years."
Long said the credit union has seen a 25% increase in volume each year in its private student loans since 2006.
"We're on pace to meet that increase or exceed it this year," he said.
As part of its new focus, UW CU redesigned its website to put its private student loan program at the center. Long said the credit union is mindful that even though students are not getting federal loans from the credit union anymore, it still needs to be able to provide basic information and make sure students have exhausted all the federal options before resorting to a private loan.
Wright-Patt Credit Union in Dayton, Ohio was also part of FFELP. Dustin Limburg, marketing representative for studenting lending, said that making sure students still receive basic information from the credit union has been a focus for his staff as well.
The credit union also recently headed a project to create a group of Ohio credit unions that offer the CU Student Choice private loan product to make a $150 million commitment to lend to students over three years.
For credit unions that were part of FFELP and didn't already have a private student loan program in place, loan referral programs seem to be a popular option to remain a part of the student lending market.
Mike Mullowney, managing partner at Silver Sword Capital Partners, a sales and marketing firm that helps banks and credit unions set up student loan referral programs, said he is seeing a high demand for referral programs. Silver Sword helps credit unions set up referral programs where credit unions earn noninterest income for connecting members with Sallie Mae's private Smart Option Loan.
Mullowney said the company has far surpassed its original goal of signing up 50 credit unions, with 200 signed up and a few corporate credit unions added to the list in the past 60 days.
"We're suddenly getting calls from corporate credit unions that have seen our releases and want to see what we're doing with Sallie Mae," Mullowney said.
One of those corporate credit unions is Corporate One Credit Union in Columbus, Ohio.
The corporate launched the referral program to its credit union members in early June and has 40 contracts set up as of now with new contracts coming in daily, according to Paul Hixon, vice president of marketing.
"Through surveys of credit unions that serve members at colleges and universities, we learned that 90% of those credit unions were looking for solutions to provide student loans," Hixon said. "This is a great alternative to offering a loan program. It's a way credit unions that don't offer student loans can get into the business, and credit unions that do still can offer their own loan program as well."
Mullowney said he already has a number of credit unions interested in lending their own money, but recommends they start with the referral program in 2010 and then offer their own lending program in 2011.
"Supply is down considerably and the economy continues to suffer," he said. "We all know what is happening with home equity so we are certainly expecting demand to continue to be up."