Student Loans About More Than Just The Loan

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Credit unions often see private student lending as simply an addition to the loan portfolio while also helping to provide a needed service to the community. But one analyst questions whether credit unions also see how the product builds the CU’s future.

Jim Holt, chief revenue officer for CU Student Choice, reminds that private student lending establishes younger relationships that benefit the credit union long term.

“Once that relationship is in place, the numbers can really add up,” said Holt, pointing to CUs experienced with student lending picking up checking accounts, credit cards, auto loans and other key services from young adults.

Holt noted that numerous studies indicate that Millennials are tiring of banks and trust credit unions. Holt emphasized that 2016 is the time for credit unions to take advantage of this opportunity to lower the average age of the membership.

CU Membership Age Climbing

Holt pointed out that according to CUNA’s 2014/15 National Member and Non-Member Survey, the average age of a credit union member has now reached 48.5 years.

“The survey also reports that only 35% of credit union members are in their peak borrowing years (ages 25-44), down from a whopping 51% in 1989. And in spite of all the discussion in the credit union space about growing membership among young adults, just 7% of members fall into the 18-24 age range, down from 9% in 2013,” Holt said.

Credit unions are inundated with ideas and strategies on how to build meaningful relationships with young adults, but the numbers from CUNA’s survey indicate that results may be lacking, said Holt.

Holt said that while providing student loans not only lowers the CU’s average membership age, it improves the bottom line through additional services young borrowers take.

Addressing results from CUs with six years’ experience offering student loans, Holt said, “It’s becoming clear that not only can this asset class perform extremely well—with annualized charge-off ratios of less than 0.75%—but these borrowers are bringing real relationships and true member value to the credit union.”

Nine-CU Analysis

Nine credit unions, ranging in assets from $250 million to $5 billion, all offering a private student lending program through Credit Union Student Choice, recently analyzed their student lending borrowers. The numbers paint a very positive picture, explained Holt.

“Average checking account penetration was nearly 65%, while more than 21% had a credit card,” he said. “Another strong indicator was that more than 10% had an auto loan with the credit union. According to one lender, total deposit balances for their student loan borrowers was more than $4.6 million while total loan balances—outside of their student loans—were approximately $3.7 million.”

Holt stated that it’s clear that these young adults are not simply indirect borrowers, and that they present credit unions with a genuine opportunity to deliver a lifetime of financial services.

“The time to engage this important segment of future borrowers is during the most critical stage of their young financial lives—financing higher education,” said Holt. “Through the delivery of fair-value loans and corresponding education, credit unions can help, while also earning the loyalty that will translate to productive, long-term member relationships for years to come.”

Is your credit union ready to build long-term, meaningful financial relationships with your members?


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