Although they are outside credit unions' traditional line of products, private student loans present an opportunity to help families pay for college when scholarships, grants and federal loans are not enough to cover the rising cost of attendance.
"I think it's crucial that a credit union be considered a full service financial institution and offering student loans is one part of that essential mix," said Dennis Dollar, principal partner of credit union consulting firm Dollar Associates. "So whether it be through direct lending or through a referral program, I believe that credit unions must offer student loans."
Hundreds of credit unions have signed on with Sallie Mae's Smart Option Student Loan referral program. The loans are underwritten, funded and serviced by Sallie Mae; participating CUs serve as a referral point via a link on their website.
"The referral loan program gives credit unions the opportunity to serve their members' student loan need without having to manage such a specialized asset," said Charlie Rocha, senior vice president for Sallie Mae.
With the Smart Option Student Loan, members can select a $25 monthly in-school payment plan or opt to pay interest only while in school.
"The loans were designed with the idea of making payments in school so you have an appreciation for how much you're borrowing and what it's going to cost," Rocha said. "Credit unions are very receptive to the idea that we may be lending money to their customers, but we are doing so in a responsible manner."
Another benefit of the referral program, Rocha said, is that credit unions "get to take advantage of Sallie Mae's size and scale."
"We did not believe we could price our loans better than what is offered through Sallie Mae after reviewing the other available solutions," said Jonathan Rhodes, president/CEO of FedFinancial Federal Credit Union of Rockville, Md, which signed on with the Smart Option Student Loan referral program in November.
The program also allows credit unions to earn income via a referral fee.
Silver Sword Capital Partners, a sales and marketing firm, helps banks and credit unions set up student loan referral programs. It currently works with more than 300 credit unions.
"Credit unions are doing in the millions of dollars in referrals," said Mike Mullowney, managing partner at the firm. "Some of them, tens of millions of dollars. So it's a significant fee income opportunity for the credit union as well, and there's no startup cost to partner with Sallie Mae."