From a Great Recession to a global pandemic, Credit Union Student Choice has experienced quite a ride in our nearly 15 years of existence. Launched in the early stages of the 2008 mortgage crisis and economic meltdown, we’ve helped credit unions navigate the winding road. Along the way, Student Choice has empowered nearly 300 credit union partners, originated $4.5 billion in loans, and, most importantly, supported the higher education dreams of more than 115,000 families.
Although each year of the past 15 has presented its own unique challenges and opportunities, 2023 is shaping up to be a critically important year for credit unions and private student lending (PSL). Inflationary pressures and escalating college costs are making it more difficult than ever for members to afford college. With enrollment numbers back on the rise post-pandemic, there’s never been a better, or more important, time for credit unions to offer fair-value loans that will help members responsibly fill college funding gaps.
To learn more and find out how your credit union can succeed in student lending, Join Credit Union Student Choice for an upcoming webinar, Top 5 Reasons to Offer and Grow Private Student loans in 2023.
No. 1: Surging Consumer Demand. Quite simply, more members need a private student loan and they’ll be looking to you for help. After several years of pandemic-influenced declines, college enrollment has stabilized and is back on the rise. According to the National Student Clearinghouse, freshman enrollment in Fall 2022 was up 4.3% from the prior year, and numbers are expected to continue climbing. The National Center for Education Statistics is projecting undergraduate enrollment will grow 8% between 2020 and 2030. Add in inflationary pressures and rising college costs, which are likely to jump after schools held the line on tuition increases during the pandemic, and it’s clear the ~$12 billion PSL market is poised for strong growth.
No. 2: Productive Young Adult Member Relationships. PSLs give credit unions the perfect solution to connect with young adults and establish a genuine opportunity for long-term member relationships. According to research conducted by Filene, in reviewing data from actual Student Choice partner credit unions, members with a credit union private student loan are highly productive. In fact, members aged 31 to 37 with a PSL have a 5% higher credit card penetration and are almost twice as likely to have a mortgage at the credit union than those without.
No. 3: 2 For 1. With private student lending, you are not only building a relationship with a young adult but also gaining access to a creditworthy co-borrower. Nearly 97% of the undergraduate private student loans originated by Student Choice partner credit unions have a co-borrower. And 90% of the time that co-borrower is mom or dad. These are prime opportunities with 45- to 60-year-olds who have their own lending, deposit, and investment needs.
No. 4: Strong, Stable Performance. With nearly 15 years of seasoning, the Student Choice portfolio has performed well across multiple economic booms and busts. The key is sensible, disciplined underwriting that includes:
- Risk-based pricing with minimum credit score requirements and criteria that strongly encourage a co-borrower.
- School certification to verify student enrollment, validate the loan amount does not exceed financial need, and ensure the student is meeting educational requirements; a process that culminates with the disbursement of the loan directly to the school.
- Restricting loans to students who are attending four-year, public and private non-profit schools with a proven history of low student loan defaults.
According to Enterval Analytics, for several of the nation’s largest private student lenders, 90+ delinquencies for undergraduate loans were 1.62% of repayment balance at the end of the third quarter of 2022, with an annualized gross charge-off rate of 2.8%. Although these numbers were up slightly from 2021 (due in large part to the end of pandemic-related disaster forbearances), they remain stable and well below the historical peaks of the late 2000s. Credit unions partnered with Student Choice have fared even stronger, with both undergraduate private student loan 90-day delinquency rates and annual charge-off rates at less than 1.3%.
No. 5: High Earning, Long Duration Yield. With the strong repayment trends described above, credit unions, on average, have also been able to recognize a very sustainable return (~2.5% ROA) that is on par or better than many other asset classes. And with an average repayment duration of 10 years, these loans deliver strong value over an extended period of time, something that will yield even more value if/when rates drop in future years.
Many credit unions are rightly focused on raising deposits in the near-term, but it’s imperative they do not lose sight of building productive relationships with young adults while helping families find long-term financial success. Offering a private student loan program allows credit unions to do both. By offering thoughtful, targeted solutions that balance member needs with program sustainability, credit unions can empower the next generation of members and build meaningful relationships in the process.
Join Credit Union Student Choice for an upcoming webinar, Top 5 Reasons to Offer and Grow Private Student loans in 2023.