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From the Editors of CU Weekly

updated 04/21/15 09:07 AM
CU Student Choice Offers Options
Private student lending addresses two pressing needs for most credit unions: loan growth and young adult member development. While this type of lending has grown significantly in the credit union space over the past several years—growing from $1.5 billion in fourth quarter 2011 to $2.6 billion in four quarter 2013— it’s also a product that’s often been viewed with a skeptical eye. However, it continues to be a significant opportunity for credit unions to play a positive and much-needed role in the education finance space.

There is a lot of skepticism about private student lending due to the relative newness of the asset class, heightened regulatory scrutiny, and the all-too-frequent media headlines lamenting rising student debt and delinquency.

Many lenders are finding success in the private student lending space, not only in delivering a much-needed product set—ranging from traditional in-school loans to innovative consolidation options—that connects with young adults, but also in delivering products that will perform in the long-term.

According to industry analyst Measure One in their December 2014 report, loan performance metrics have continued to improve for the nation’s largest active private student lenders. The six participants analyzed in the report represent approximately 70 percent of the entire private student loan market.

Among the report’s highlights:

  • Year-over-year delinquencies continued a significant downward trend
  • 2014 delinquency rates were the lowest since before the 2008 economic crisis
  • Annualized charge-off rates declined to post credit-crisis lows; falling to 2.4 percent, a 22 percent positive change in Q3 2014 compared with Q3 2013

While those numbers are strong and improving, what’s even more impressive is the performance of loans originated by credit unions. Unlike some of the largest private student lenders, credit unions are unburdened by legacy loans tied to the reckless heyday of private student lending, and have built sustainable lending portfolios by implementing several key principles from day one, including:

  • Educating prospective borrowers before the loan to ensure proper decisions are being made
  • Risk-based pricing and credit criteria that strongly encourages a co-borrower
  • School certification to verify enrollment, loan amount, and disbursement
  • Restricting loans to students who are attending traditional four-year schools
  • Lending directly to students and families within your area and focusing on building real relationships

Strong performance numbers are validating this disciplined approach. Nearly 250 credit unions utilize the Credit Union Student Choice lending platform and, combined, have more than $1.5 billion in outstanding private student loans. Of that total, nearly 50 percent ($733 million) is now in full repayment status.

In reviewing undergraduate loans only, comprising $490 million of the most seasoned loans in repayment, as of Q3 2014:

  • Less than 1 percent of loans in repayment were 90+ days past due
  • Annualized charge off rates stood at only 0.73 percent
  • Early to mid-stage delinquencies are stable among all seasoned origination vintages
  • Credit unions, on average, are realizing ROAs between 2.5 percent and 3 percent
  • Borrowers, on average, are enjoying average interest rates of 6 percent with no origination or pre-payment fees and a relationship with a local lender they can trust

When credit unions first began offering private student loans through the Student Choice platform in 2008, they did so with a desire to help their members responsibly pay for college and a belief that proper underwriting would yield solid performance and long-term member relationships. Now, nearly seven years later, more than 60,000 borrowers have now worked with a credit union to fund the most important decision in their young financial lives. The rewards of that relationship are not only paying off in the short-term, but will yield positive results for many years to come, for both credit unions and members.

For more information on Credit Union Student Choice, please contact Tonja Wheatley, vice president of Credit Union Solutions and Membership, at 909-212-6023 or tonjaw@ccul.org.

Article content provided by Credit Union Student Choice.