Washington Regulator Urges Go Slow On New Student Loan Programs
OLYMPIA, Wash. – State regulators called on credit unions to incorporate good risk management when embarking in private student loan programs and to limit the growth in the programs until a level of expertise is obtained.
“We would expect a credit union to limit the concentration of private student loans on the books, as a new unsecured loan program, to growth of no more than 10% of the credit union’s net worth per year,” said the Department of Financial Institutions’ Division of CUs, in a new bulletin issued this week. “This limit should remain until the credit union has more than three years of satisfactory experience with the student loan program, including at least two years collecting material amounts of loans that have entered the principal and interest repayment period.”
The new bulletin comes as a growing number of credit unions are launching private student loan programs, as the federally guaranteed student loan program is being phased out.
State examiners recently found a few credit unions have adopted student loan programs with very limited research and few controls.
Examiners will expect credit unions to perform adequate due diligence; provide an adequate allowance for loan losses; obtain insurance with a Washington-licensed insurer; establish membership eligibility for all borrowers; and provide ongoing monitoring of services provided by and the financial health of third-party vendors.