Student loans: Low risk, attractive yield
Product can lead to additional lending opportunities in the future.
A college education continues to be one of the best investments a young person can make in terms of their earning potential, especially as it has become more of a requirement for the workplace.
The percentage of men and women with college degrees is at an all-time high, according to Statista 2017, and the number of Gen Z students going to college will continue to rise over the next several years, the National Center for Education Studies reports.
However, outcomes matter, and parents and students need to think more deliberately about what career the student will be pursuing and if that career justifies the investment.
Due to rising costs associated with attending college, education lending, including education refinancing and private, in-school student loans, will continue to grow.
We’ve also seen rising rates contribute to the increase of graduates refinancing their student loans to fixed-rate student loans to either reduce how much interest they’re paying or to lower their monthly payments.
The cost of education sets the standard for the amount of loans needed, and as schools continue to raise their tuition rates above the rate of inflation, demand for education loans has continued to increase.
Since federal loans are capped in terms of loan amount, private in-school student loans are a solution for students who have run out of financing options. These students look to their community for assistance, and this is where credit unions come into play.
Student loan refinancing is pitted against rising interest rates. The rise in rates is driving more students with variable interest rate loans to refinance their student loans at a lower fixed rate.
Eighty-percent of LendKey’s student loan refinancings are fixed-rate loans. The opportunity to capture these highly educated borrowers at the beginning of their credit journeys can lead to additional lending opportunities as their needs evolve over time.
Credit unions have started to enter these asset classes with vigor, but only a few are deploying more than 1-2% of their capital into this expansive asset class. Default rates have been low historically, and more credit unions will continue to invest in these growing asset classes to appeal to younger generations, as well as get attractive yield returns relative to other options.