Filene report explores student lending

May 14, 2015

MADISON, Wis. (5/14/15)--A new report from the Filene Research Institute outlines strategic implications for credit unions offering student lending services.

The growing necessity and costs of college have raised the financial stakes--and the risks-- for borrowers, according to the paper entitled “Helping Members Navigate College Costs.” For credit unions, selective expansion of student lending can diversify portfolios, attract younger members, and promote lifelong relationships.

Credit unions represent a small segment of U.S. student lending, which is dominated overwhelmingly by government loans (92%), followed by private loans (8%) made mostly by six for-profit institutions. Only one in 10 credit unions held any student loans in 2013, which totaled $2.6 billion across 643 institutions, according to the National Credit Union Administration.

Altogether, credit unions accounted for just 3% of the $92.6 billion in total private student loans outstanding and 0.2% of all U.S. student loans.

For those credit unions offering student loans, the most common method is to offer a website application link to a networked service organization, which offers technical support and possesses the capabilities to define the next generation of online finance navigators.

Given economic, financial, and technological trends the report advises that credit unions “keep a toe in the water” of private student lending--to offer personalized college financing services to member-borrowers that leverage third-party resources and navigators, enable financially sound decisions, and deliver high-value loan products.

“To participate in this most positive, enabling form of lending, the objective has to be service to members, not pursuit of volume or revenue goals,” the paper noted. “The most important advice for member-borrowers is to first maximize all available grants and subsidized loans before turning to a private student loan. Private student loans should be used as ‘gap funding’ to cover the gap between financial aid and government loans on the one hand and remaining tuition or expenses on the other.”