The student lending landscape continues to shift and evolve based on the political environment. While the Biden administration focused on loan forgiveness, loan payment relief, and overhauling the Free Application for Federal Student Aid (FAFSA), the Trump administration is focused on overhauling the Department of Education (DOE).
As DOE Downsizes, Could Private Student Lending Upsize?
Although the complete abolishment of the DOE is unlikely, downsizing the department has begun. There have also been some rumblings about limiting or eliminating Parent Loans for Undergraduate Students (PLUS) and Graduate PLUS loans, which account for more than $24 billion in annual originations. That could have a sizeable impact on the demand for private student lending, which is roughly half the volume of the current PLUS and Grad PLUS programs.
Even with PLUS loans remaining a key cog for parents and grad students in 2025, credit unions will have a tremendous opportunity to deliver better value via their own private student loan programs. Interest rates on Federal PLUS loans — a direct competitor to private student loans — are likely to be set at their existing level — 9.08% — or even higher. These rates are set in May and based on the 10-year Treasury note high yield plus a margin. High rates on PLUS loans, coupled with a 4.2% origination fee, give credit unions the chance to step up and provide a better deal.
Uncertainty remains, of course, but reading the tea leaves points to an emerging opportunity for private lenders, including credit unions.
A Pressing Member Need
Meanwhile, students and their parents need help navigating a complex and uncertain college funding process. Spring is when many graduating seniors decide which university they will attend and returning students look to shore up financing for their next academic year. Regardless of the ongoing political turmoil, these kitchen table financial needs won’t wait.
That’s where cooperatives have an opportunity to step in. Credit unions were founded to provide solutions for unmet financial needs within their communities, so it’s no surprise that more than 700 credit unions nationwide now offer some sort of education lending product.
Ensure your credit union’s lending solutions meet families’ most pressing needs. As the demand for responsible higher education financing continues to grow, your credit union can provide affordable and flexible funding that families can rely on as they plan for the future.
Long-Term Member Value
With the average credit union member’s age hovering around 53, it’s likely you have a strong member segment of families with college-age children. Your community or field of membership might also include local colleges or universities. At the same time, many credit unions struggle to attract younger generations who can generate a lifetime of member value.
Connecting with new young adult members can be as simple as offering reliable and affordable education financing solutions, which then serve as the foundation for lifelong member relationships. Based on analysis of Student Choice’s private student loan data, we’ve found that after 13 years, the average PSL borrower has opened 2.5 auto loans and two mortgage loans either within or outside the credit union. Meanwhile, their average FICO score has jumped to nearly 800 as their average annual income has reached $125,000. These are new members and lending opportunities credit unions simply can’t afford to miss!
Next Steps To Take Right Now
Student lending is a niche product. Finding a partner whose offerings align with your strategic goals can help you enter the market easily and develop a sustainable program that runs efficiently.
Rolling out a program doesn’t have to be difficult or costly; an experienced CUSO partner like CU Student Choice provides customizable plug-and-play solutions with no need to hire additional credit union staff or worry about expensive technology integrations. In fact, the Student Choice team can have your program up and running in about 30 to 45 days. From understanding an evolving market to establishing program parameters and marketing support, this private education solution involves a low lift for a high return.
Contact us to learn more about how CU Student Choice can make it simple to offer profitable student lending solutions that your current and future members can rely on.
