MADISON, Wis. (2/5/15)--When students cannot completely finance their education with only federal loans, credit unions have an opportunity to step in and help, according to a new report from the Filene Research Institute.
Private student lending may offer only modest initial gains or revenue to most credit unions, but it can serve as a long-term engine for growth, said the report, "Student Lending: Challenges and Opportunities for Credit Unions."
Credit unions are working in the private student-lending sector, with two distinct models
emerging: the large credit union service organization (CUSO) model, where groups of credit unions have come together to offer a standardized lending product, and individual credit unions offering unique private lending options.
A CUSO model is likely the best route for small- to medium-sized credit unions underwriting a limited number of student loans each year, the paper said. The CUSO model provides an "out of the box" platform that requires minimal customization to begin offering student lending options.
One CUSO is LendKey, a CUNA Strategic Services strategic alliance provider, a network of almost 200 credit unions that use similar pricing and underwriting for undergraduates as well as loan consolidation for graduates.
Larger credit unions may see more advantages in seeking their own platforms from which to operate student lending. These platforms may require a greater initial investment but provide more customization and flexibility for student lending.
Customized platforms are better suited to credit unions with a distinct field of membership and those that provide a large number of student loans on a regular and annual basis, such as larger college- or student-based credit unions.