LOS ANGELES - With the federal student lending program in flux and the rising cost of tuition, private student lending has become a necessary bridge to students–and a lucrative opportunity for credit unions.
“It’s a very good time to get into private student lending,” said Mike Kim of USC FCU, which serves the University of Southern California. “Because the profitability on the federal side has diminished greatly, a lot of banks are backing away from the federal programs, and they’re raising the pricing margins on the private side to make up for the loss in profitability on the federal side.”
Perhaps the scariest aspect of private student lending: terms are frequently in the 25-year range for an unsecured loan. But Kim urged credit unions not to let that deter them from what could be an excellent chance to reach the much-coveted youth market, noting that there are steps a credit union can take to mitigate the risk. USC FCU, for example, uses cosigners, minimum income levels and insurance. “It’s scary to make a loan to someone who’s not working and won’t be for about four years,” he observed.
While USC and other credit unions that specifically serve universities or college towns have fields of membership with an obvious, built-in need for student lending, Kim suggested just about every FOM represents similar demand. “I can’t imagine a field of membership that doesn’t need student loans,” he said.
Jon Jeffreys of the student lending CUSO Credit Union Student Choice, agreed. “A lot of people point out the importance of reaching out to Gen Y, but remember, that’s not the only group you’re reaching,” he suggested. “Credit unions have a disproportionate number of people aged 45 to 54, and guess what? Those people have children they want to send to college. This is a product that crosses a number of important demographics.”
While the federal program boasts the 97% guarantee, the private side has its benefits, too, not the least of which is the power to set your own rates and terms, noted Dana Rawlings, COO of Smart Financial CU, Houston. “You can make some money on the private side, but you need to have a good platform in place to service these loans,” he said.
After more than 15 years of being part of the federal student lending program, Philadelphia FCU is finally looking at the private side, according to Claire Ippoliti, PFCU’s vice president of lending.
“We just see an opportunity right now to get the word out that we are lending money and have a very favorable product,” she said of the CUs existing participation in the federal loan program. “One item we have been researching for over two years has been private student loans, and until this year, we were not able to find an outlet that we could feel comfortable partnering with (either due to the terms of the loans or bank affiliation). But, this has changed in 2008 and we are actively pursuing a partnership so that we can offer private student loans to our members. We feel there is a great need for this.”(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
