Should Credit Unions Offer Private Student Loans?
Madison, Wis. — Some readers will remember the bad old days of student loans when financial institutions would lend students funds for college expenses with few questions asked. The money went directly to the students often without the school involved. And if finances went south, bankruptcy was an option used to get out of paying off the loans.
“Should Credit Unions Offer Private Student Loans?” is a white paper recently released by CUNA’s Lending Council that charts the evolution in the private student loan market. A change in the student loan business model occurred after the credit crisis of 2008. After that time, many lenders got out of the student loan business while those that remained changed their ways and implemented conservative underwriting.
When a reporter asked chief lending officers for recommendations to discuss the private student loan market, one name was near unanimous—Mike Long, EVP and chief credit officer, UW Credit Union, Madison, Wisconsin, $1.3 billion assets and an Executive Committee member of CUNA’s Lending Council. The credit union is number two in the nation with almost $50 million in outstanding private student loans; the average interest rate on student loans, 4.8%, is the lowest of the top ten lenders in the private student loan market.
According to Long, the most frequent question asked concerns the credit union’s private student loan performance. Some 32% of the loans are currently in active repayment.
“As of June 2011, our delinquency ratio—calculated on loans in repayment—is less than 1.2% and charge-offs are 0.01%,” he says. “The average loan is $6,200 and 86% of the loans have co-signers and credit scores average 732. We processed more than 18,000 applications and approve roughly 50% of the applications.”
Long advises credit unions to be “mindful of the amount of money you allow people to borrow from you and make sure your loan portfolio isn’t too heavily into private student loans. We have a policy that only 10% of our total loans are in private student loans.”
The UW Credit Union started a CUSO, CU Campus Resources, which has been in existence for about one year. It is a CUSO designed for credit unions with a similar size to the UW CU, $1 billion in assets or an organization that has a university in its field of membership. The members of the CUSO should have a goal of originating 500 or more private student loans a year.
CUNA Council members are entitled to complimentary copies of these and more than 200 white papers; non-members may purchase the white papers for a price of $50 per copy.
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CUNA Lending Council
The CUNA Lending Council is the premier source of best practices information for lending professionals in the credit union industry. Guided by a self-directed and self-governed community of more than 1,000 industry lending professionals, the council provides networking support, education, current information, and professional development tools for its members. The CUNA Lending Council is one of the six organizations that make up the CUNA Councils, a network of more than 5,000 credit union professionals. For more information, visit www.cunalendingcouncil.org or www.cunacouncils.org.