Need for Diversification Spurs Interest in Student Loans

Offering private student loans can be advantageous to a credit union in many ways, and more and more CUs are taking an interest in the product.

"I have not been at a credit union strategic planning meeting in the last nine months where student lending has not come up. It has become a major topic of strategic conversation because students need the loans and credit unions need the business," said Dennis Dollar, principal partner of credit union consulting firm Dollar Associates.

Private student loans can also be a way to diversify from auto loans, credit cards and mortgages, as well as earn income.

"Credit unions are looking for any source of additional income that they can find with a reasonable amount of risk attached," Dollar said. "I believe that the earnings potential is perhaps greater with private student lending than it would have been under the previous guaranteed program," known as the Federal Family Education Loan Program, by which credit unions, banks and other lending institutions made government-insured loans to parents and students. In May, President Obama signed legislation mandating that no new FFELP loans could be made after June 30, 2010.

For community-minded CUs, the loans' most important function may be helping families for whom scholarships, grants and federal loans are not enough to cover the actual cost of attending college, which has skyrocketed in recent years.

IH Mississippi Valley Credit Union of Moline, Ill., entered the private student lending arena "because we had a strong need within our community for student loans," said Laura Ernzen, vice president of marketing. "It became clear that the financial environment had shifted and with those changes, our members had fewer affordable options to fill the gap between government and school-based financial aid and the overall price of tuition."

With 47 being the average age of credit union members, another valuable aspect of private student loans is that they draw young people to the credit union and create a foundation for a lifelong relationship with Gen Y members.

"Member service is always our primary driver here at American Heritage and we recognize how important this loan program could be in our long-term relationship with our [young] members," said Bruce Foulke, CEO of the Philadelphia-based credit union. "Student loans to members will help us earn their continued patronage as they grow into their peak borrowing years."

Fynanz, the financial technology company that powers cuStudentLoans.org, a private student loan marketplace, has brought 4,000 new Gen Y members to its credit union partners over the past two lending seasons, according to Director of Marketing Christian Widhalm.

The company was founded in 2007 and the lending capacity of its platform is nearly $200 million. Fynanz's nationwide student lending network has 98 credit union partners, 78 of whom offer EdAccess, its turnkey private student loan program, and 20 of whom have custom-built programs. CU Student Lending, a CUSO formed in June of 2010, manages the EdAccess loans.