While student lending still only accounts for a small portion of overall lending, more and more credit unions view it as a potentially lucrative market – not only for growing their portfolios, but for attracting young members to the credit union.
Beavercreek, Ohio-based Wright-Patt Credit Union began offering private student loans in 2008, and today it has about 3,400 student loans on the books for a total of $80 million outstanding.
"Year over year we've grown as much as 20% [in student loan volumes], but now that around 50% of the loans are in repayment, the growth of the portfolio is typically around 5% to 10% annually," said Eric Bugger, vice president consumer lending at the $3.3 billion-asset institution.
To be eligible for a student loan at Wright-Patt CU, a borrower must be a member of the credit union, an undergraduate student enrolled at least half-time in a degree-granting program at a certified school or graduate business students enrolled half-time at a certified school. Depending on credit qualifications, students may need a co-signer to qualify for a student loan.
Bugger cautioned, however, that both Wright-Patt CU and its student loan partner CU Student Choice, recommend that every student look into what government funds may be available to them prior to applying for a private student loan with them.
"In many cases, students may qualify for grants or lower-cost loans from a government subsidy program that can save them money in the long run," Bugger noted. "But once those avenues have been explored, the private student loans offered by Wright-Patt CU are a great option to supplement other funding sources."
Some of the benefits of WPCU's private student loan program, Bugger indicated, include the fact that the funds can serve as a line of credit that can be used throughout a student's college career. In addition, they carry low interest rates – with the possibility of a 0.25% rate discount if payments are set up to be made automatically.
Plus, the credit union offers various payment options, including a graduated repayment option to help students get through the first few years after they graduate, no origination fee and no pre-payment penalty.
"Our student loan program is only eight years old and only about half of the loans are presently in repayment, so it might be premature to thoroughly assess the default rates, but so far our default rate has been significantly less than our other unsecured loan portfolios," Bugger noted. "While closed-end unsecured loans and credit cards can sometimes have default rates above 2.00%, so far our student loan portfolio default rate has not reached 1.00%."
Navy Goes to College
The nation's largest credit union, $7.8 billion-asset Navy FCU of Vienna, Va., began offering student loans in April 2015 for current students and for members looking to refinance existing student loans.
Accordign to Aaron Aggerwal, AVP of education lending, the credit union currently has 5,000 student loans outstanding, totaling $88 million in volume as of the end of July 2016.
"Our student loan portfolio continues to see strong growth and application volume continues to increase as we enter the new academic year," he noted. "Given such growth and positive feedback from our members, we began offering fixed rate loans and additional term options."
Chicago-based Alliant Credit Union, with $9 billion in assets, has offered student loans for ten years and currently holds nearly 3,000 such loans totaling more than $27 million.
Alissa Green, digital marketing manager at Alliant, said that with respect to student loans, the credit union has witnessed a 21% growth in applications year-to-date, a 9% growth in year-over-year balances, a delinquency rate of only 0.26% in June of 2016; and a charge-off for June 2016 of around 20 basis points.
Alliant's student loan products feature variable rates; a 12-year repayment terms with six-month post-graduation deferment; a choice of repayment options, including deferred, interest only or immediate repayment (and with no rate bumps or fees for any of these options); and no origination fees.
"We know that student loans are an important offering for our members and as a result have increased both our product focus and marketing efforts in 2016," said Jason Osterhage, SVP of lending at Alliant. "July [2016] actually saw the highest volume of traditional student loan applicants we've seen to date."
Looking ahead, Osterhage added, "We're working towards the continued growth our program. For example, we'll be offering more student loan consolidations terms and rates as early as this fall."
Fulfilling the CU Mission
Wright-Patt's Bugger said other credit unions regularly contact him for advice on launching their own student loan programs, suggesting that the product is gaining in popularity.
"Helping members improve themselves by getting a college education is a fantastic way for credit unions to achieve their mission, so offering private student loans is growing in the credit union space," he commented. "I think as it becomes more of the norm with credit unions and we see how these loans are going to perform, you'll continue to see more credit unions offering student loans."
However, Bugger cautioned that many lenders are still fearful of potential default rates because they hear the "horror stories" of the government student loan defaults being so high. "But what they need to remember is the government student loan program has little, if any, underwriting criteria and the private student loans offered by credit unions typically have very specific underwriting guidelines that are proving to be conservative enough to protect the credit union, but accommodating enough to help students pay for their education," he added.
