MADISON, Wis. (11/18/15)--Student loan debt presents a challenge for the millennial generation. Forty million borrowers owe $1.2 trillion in outstanding student loan debt, with an average balance of $29,000, according to Federal Reserve statistics.
True to their original mission, credit unions are helping their members meet this challenge through student loan refinancing and consolidation loans. Consolidation loans combine multiple federal and private education loans into one loan with a single monthly payment, typically at a lower overall cost with a variable interest rate.
Aspire FCU, Clark, N.J., offers student both in-school student loans and refinance loans through LendKey, a CUNA Strategic Services strategic alliance provider that offers an online lending platform for credit unions and community banks.
Thomas O’Shea, Aspire FCU president/CEO, said the credit union has been offering in-school student loans since 2009, and began offering consolidation loans because it was losing the loans when students graduated.
O’Shea told News Now that it’s important that LendKey’s consolidation student loan product is a variable rate loan. “We have interest rate risk protection built into it,” O’Shea said. “We’re not locked into any fixed rates.”
Just as importantly, he added, the credit union is entering into a relationship at the beginning of the member’s adult life cycle. “We’ve got a college graduate, who in all likelihood will have a good-paying position,” he said. “Using some logic, you know that member is going to need a car loan and a mortgage loan in the future. We’re talking about working with them through the various stages of their life to try to build a really solid long-term relationship.”
Ryan Giffin, vice president of lending and sales at CME FCU, Columbus, Ohio, another LendKey partner, said his credit union has also approached student lending and consolidation loans as an opportunity for relationship building.
“From a lender’s perspective, they may come to us because of a student loan or a consolidation loan that they found online, but that’s my opportunity to deepen the relationship,” Giffin told News Now. “We have had success cross-selling mortgages, and car loans. We opened new checking accounts and set up direct deposit. It’s worked out great for us.”
The average age of a LendKey consolidation loan borrower is 28.5 with a FICO score of 751, according to Jason Hills, LendKey’s senior vice president of sales and account management “It’s a very different loan than an in-school student loan,” Hills told News Now. “These are college-graduated millennials who have jobs, which sounds a whole lot like the demographic that credit unions need. There’s an opportunity for credit unions to serve a real consumer need and attract millennial members.”
UW CU, Madison, Wis., has been offering student loans since 2006. In 2010, it formed CU Campus Resources, a credit union service organization (CUSO) that provides student loan processing and disbursement services, including consolidation loans.
Mike Long, president/chief operating officer of CU Campus Resources, cites Federal Reserve statistics that show 28% of 18- to 29-year-olds have student loan debt as a reason why UW CU formed what he terms the “boutique” CUSO to create economies of scale in serving a consumer need.
“A lot of student loans are arranged within the financial aid office of universities and colleges, but with the refinance loans the opportunity is open for every credit union to participate because we know that a certain percentage of their members are going to have student loans based on those statistics,” Long told News Now.
And, Long said, those members are a young but stable demographic. “We found that the borrowers who are attracted to this product are members who are in their late 20s or early 30s who are really starting to get more serious about their finances and recognize that they can benefit by consolidating these student loans.”
He said the performance of the consolidation loans speak to that maturity. In 10 years UW CU has charged off less than .2% of its balances on its student loans with a delinquency rate of less than 1%.
Long said student loan consolidations represent an opportunity for credit unions that similar to the opportunity that mortgage loans offered 20 years ago.
“Ít’s a perfect fit for credit unions,” he said. “It’s a consumer-based need, and that’s what credit unions were designed to serve.”
Look for a compilation of this year's "CU Effect" stories on Dec. 2.