CUNA Lending Council Conference

CUs Missing Out on Student Loan Opportunity

Panel schools conference attendees on benefits of private student loans.

November 12, 2012

From left: Andrea Mosher, University of Michigan CU; Bill Sweeney, CORE FCU; and Rick Burden, Notre Dame FCU.

Would your credit union welcome a chance to forge 15-year relationships with young adults and their parents with loans that, 90% of the time, have co-signers and earn a yield of 3% to 6%?

Many private student lenders have pulled back on student loan originations, says TransUnion’s Ezra Becker.

Then why do less than 0.5% of credit unions offer private student loans?

That’s what a panel of student lenders asked during the CUNA Lending Council Conference in Miami.

To be sure, private student loans have suffered a black eye in recent years as “bad actors” inundated students with marketing messages for loans up to $50,000 per year, according to “Demystifying Student Loans,” a white paper handed out during the panel discussion. “Loans were given freely and if finances dried up, bankruptcy was an easy option. Funds financed more than a few motorcycles and trips to Europe.”

But these excesses have largely been corrected, and student loans offer opportunities for both income—and to provide an affordable way for members to send their children to college, panelists said.

Be part of the student loan dialogue with members, advises Jim Holt of CU Student Choice.

“Demystifying Student Loans” offers this snapshot of the student loan market:

“We treat these loans as we do other unsecured loans,” says UW CU’s Sherry Nelson.

UW Credit Union in Madison, Wis., has made 10,438 private student loans and will likely disburse nearly $20 million in 2012. Credit union staff have made it a priority to develop good working relationships with the financial aid offices on each University of Wisconsin campus, says Sherry Nelson, educational lending product manager.

“During the past couple of years, other loans have been running off almost faster than we can originate them,” she says. “But student loans are different. Every six months we’re seeing more loans go into repayment as the portfolio becomes more seasoned.”

Ninety-percent of UW CU’s student loans are co-signed, says Mike Long.

Yields have averaged 4.32%, Nelson says, with a 0.64% delinquency rate and a 0.18% charge-off rate.

“We manage credit risk on these loans the same as we do all of our loans,” says Mike Long, UW Credit Union’s executive vice president/chief credit officer. “If a member came to you for a $25,000 credit card loan, you’d fall all over yourself to oblige. This is a real opportunity for credit unions to help members meet their financial objectives.”