Students Loans Are Profitable Niche for Credit Unions
- Credit unions poised to prove that student loans are viable investments.
- Slight growth last year has increased the industry’s comfort level.
- Emphasizing the differences between federal and private student loans is key for credit unions.
Last year was not the most glowing year for student loans, reputation-wise. The Consumer Financial Protection Bureau’s release of numerous negative comments from the public on their experiences as private student loan borrowers, comparisons of student loans to the burst mortgage bubble and the fact that national student loan debt grew to nearly $900 billion has led to questions about how wise it really is to make or take out a student loan.
In a Nov. 6 white paper, “Demystifying Private Student Loans,” authored by financial services writer Jim Jerving and produced by CU Campus Resources and Credit Union Student Choice, TransUnion data show all private student loans with a 5.33% delinquency rate and federal student loans with a 12.31% delinquency rate.
“This is partially due to the fact that unlike federal loans, which are need-based, the loans that credit unions offer are underwritten by credit and other risk criteria and scrutinized before acceptance just like any other type of loan that they offer,” said Andrew Bolton, senior industry analyst for Callahan. “They are not very similar to federal loans because those are granted without any sort of credit underwriting or risk evaluation of the borrower.”
“What also helps is the fact that [Credit Union Student Choice] offers repayment relief, and that really helps members upon graduating who may be underemployed,” Holt said. “They may find that their payments are high and have some heartburn over making them consistently, so we offer these graduated repayment options to help them avoid slipping into early delinquency and default.”
The benefits of private student lending for credit unions go beyond the opportunity to attract and build relationships with young members. Experts say the financial benefits of private student loans are not often talked about but are very real.