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Rebound And Reboot: Why Credit Unions Are Set For A Surge In Private Student Lending

Attrition in the space will drive demand to traditional deposit-backed institutions. In turn, colleges and universities will seek stable, community-focused institutions that can support families.

Inflation. Student loan forgiveness. Midterm elections. Today’s headlines are full of topics affecting credit unions and their members, especially those managing the high costs of higher education. But among all the unknowns, there are also clear signs that private student lending is set for a surge.

Private Student Loan Rebound

As pandemic concerns slowly subsided in 2022, millions of joyous college students streamed onto college campuses this fall. With students back in full force, application activity and disbursement volume for private student loans jumped significantly from the covid-impacted years of 2020 and 2021.

During this year’s busy summer lending season of June through September, when the majority of annual private student loan activity occurs, application and disbursement volume for Student Choice partner credit unions for new loans jumped nearly 30% year over year.

Costs Going Up, And Credit Unions Well-Positioned To Help

Many colleges froze tuition increases during the past two years due to the pandemic’s economic impact, but tuition and fees are back on the rise. For the 2022-23 academic year, these costs at ranked public schools increased 0.8% for in-state students and 1% for out-of-state students, and 4% at ranked private schools. But that’s just part of it. Inflationary pressures are impacting both families and colleges, increasing the cost of everything from housing to food. At the same time, 529 plans and 401(k)s are taking a beating, causing many to reconsider how they are going to pay for college.

It’s clear that fair-value private student loans from credit unions will continue to play an important role in helping families fill college funding gaps. Credit unions have a growing cost-of-funds advantage over many fintech lenders that have entered the private student loan marketplace in the past 10 years. Likely attrition in the space will help drive demand to traditional deposit-backed institutions, such as credit unions. In turn, colleges and universities will seek stable, community-focused institutions that can support families in need of additional funding.

Rebooting Student Loan Refinance

As we all know by now, payments and interest on most federal student loans have been paused since early 2020, when the Trump Administration introduced the policy in response to the emerging pandemic. The pause has been extended multiple times over the past 2.5 years, but on August 24th the Biden Administration announced a “final” extension to Dec. 31, 2022, at which point payments will resume.

In addition, during this announcement the Administration also rolled out several key measures to help those with federal student loan debt, including:

  • Federal student loan cancellation (up to $10,000 for non-Pell Grant recipients and $20,000 for Pell Grant recipients, depending on income).
  • Important changes to broaden the income-driven repayment plan that is available to federal student loan borrowers and reduce monthly payments.

Although these announced measures are strictly tied to federal student loans, and have no impact on private student loans, they have brought much-needed clarity to a cloudy situation. Although recently filed lawsuits have called into question whether loan cancellation will proceed exactly as planned, these announcements end years of speculation and are likely to spur activity in student loan refinance. With federal repayments starting in just a few months, many borrowers will be looking to leverage attractive rates to refinance debt that isn’t eligible for federal cancellation.

Learn More From Industry Experts And Peers

To learn more from your credit union peers on how they are leveraging opportunities in student lending and gain political insight on what’s coming next in student lending policy, check out https://empoweru.studentchoice.org/ to view recorded session from our 8th Annual Empower U.

WATCH EMPOWER U NOW

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
October 7, 2022

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