Credit unions and college students are in desperate need of each other. Today, only 9% of credit union members are ages 18 to 24, and a disturbing 70% of nonmembers in that age group are “not at all familiar” with credit unions, according to CUNA’s 2011-2012 Survey of Potential Members (“Young & unaware,” p. 42).
“Credit unions must not sleep on generation Y,” says Shawn Gilfedder, president/CEO of McGraw-Hill Federal Credit Union, East Windsor, N.J. The
$240 million asset credit union began its student lending program in July 2010. “If credit unions don’t pick up the student lending ball, banks and larger financial institutions will.”
Students’ lack of financial knowledge can be an obstacle to understanding the details of their loans, making a credit union partner even more important. McGraw-Hill FCU instituted educational programs to teach students, parents, and grandparents how to finance college economically, so they can limit student loan debt.
The credit union uses educational blogs, personal consultations, and family-focused seminars providing extensive student loan information. Its Financial Literacy Series also presents an accredited program and real-life examples from financial professionals.
“Our goal is to offer more than a loan product—we offer guidance to help optimize success,” Gilfedder emphasizes. “We not only sell student loan financing, but we educate students and their families on the entire process, while making sure education expenses match postgraduate income potential.”
Belco Community believes in educating students on financial matters as they’re in school and while they’re growing into their careers. “If we’ve done a good job, then we’ll have a better educated student that’s better prepared to enter the work force, be productive, and repay their loans,” Walker notes.
NEFCU, Westbury, N.Y., with nearly $1.6 billion in assets, offers financial aid and financial literacy classes for students. It’s also expanding its on-site financial literacy support with Web-enabled tools.
“Showing students how to plan, how to save, and how to manage their funds sets them up for long-term financial success,” says Valerie Garguilo, NEFCU’s vice president of marketing and community relations. “We provide education, resources, and hands-on assistance to students that give them the tools and knowledge that encourage and reward financial responsibility.”
Sharing risk and resources
Belco Community offers its student members the EdAccess Private Student Loan within the cuStudentLoans program. CuStudentLoans allows students to finance the education while they’re in school, explains Walker.
CU Student Lending LLC—a credit union service organization (CUSO) of more than 100 credit unions—developed cuStudentLoans. Participants offer the same loan to students with the same rate, no matter which credit union the student goes through, according to Fynanz’s Passione. Credit unions share the risk by pooling their capital.
Passione says there are several reasons these credit unions offer this loan, despite the fact they could be competitors with each other. First, by joining together, the credit unions in the CUSO have a greater lending capacity, making it attractive to higher education institutions. Second, the credit unions receive a participation in the loan, regardless of which credit union originates it. Third, it’s a way for credit unions to offer a needed service to members with mitigated risk, and the credit unions diversify their loan portfolios.
The CUSO also offers the EdSucceed Private Student Loan Consolidation option, which allows students to refinance and consolidate their loans after they graduate. Graduates who originated loans at higher rates than those available now can lower their interest rates, often two to three percentage points, says Passione.
Besides offering financial education seminars, Belco Community is developing a product package for students. It will include a student loan, checking account with debit card access, and an option for a low-balance and reasonably priced credit card. They also will make depositing money into student accounts simple for parents.
“Our hope in creating this package for them is that we’re going to be able to help students reach their financial goals in a responsible way,” says Walker. “Our solution, in trying to mitigate potential losses, is to be very proactive on the front end.”
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