Target May Not Be Hit, But CUs Pledge $1B Toward Student Loans
WASHINGTON-Credit unions nationwide have pledged a total of $1 billion toward alternative student loans for the upcoming academic year, and although one executive believes CUs won't come close to meeting that figure, the amount is indicative of a growing lending market.
Mike Weber, VP of marketing for Credit Union Student Choice, a CUSO focused on student lending, noted that while there likely won't be any delay or disruption of federal funds for students for the upcoming academic year, "there's a very cloudy future about what budget cuts are going to mean for higher education," both at the federal and state level.
That uncertainty, however, makes for a particularly strong market for credit unions, said Weber. While private lending grew "at a tremendous pace" during the 1990s and early 2000s, much of that market-which relied on bundling those loans and selling them to a secondary market similar to mortgages-dried up with the economic collapse. But students still need loans to bridge gaps left by traditional lenders, and Weber said that's where CUs can step in.
More than 200 CUs are aligned with Student Choice, and Weber explained that each member institution underwrites and portfolios all of its own student loans. Credit unions associated with the CUSO funded nearly $250 million in private education loans during 2010, serving almost 21,000 students. Weber said that results for 2011 are "trending well ahead of that pace." The overall market for private student lending in 2010, he said, was more than $8 billion.
"The window of opportunity seems to be wide open at this point," said Weber, noting that the cost of education continues to rise, even as traditional funding opportunities become increasingly threatened. "There's still going to be a very large market for this product now and as far into the future as we can see."
Weber said that CUs interested in entering the student lending market should be aware of the risks involved, including "something credit unions face every day: strong competition from some very well-known entities," including Chase, Discover and Sallie Mae. There are also regulatory issues to deal with, he said, and "credit unions have historically not been in this business, so the average consumer may not think to look to a credit union for a private education loan."
The solution, he continued, is two-fold: "Having some sort of a partner is pretty much a necessity," he said, explaining that between regulations, college financial aid offices and more, it can be challenging for CUs to jump right into the market. Beyond that, he said, consumers have to know that credit unions offer student loans, and so getting on a school's preferred lender list is essential.