- Alex Alexander, 30 Under 30 member
As a graduate student, I am absolutely concerned about student loans. Many people are. At a credit union where I used to work as a member service rep, I remember several students and parents came in looking for some type of student loan product.
Because the CU did not offer student loans, I had to either cross-sell a collateral product to the parents (i.e., home equity) or recommend that the students apply for a Federal Loan through their school, and hope that it would cover their costs.
I discussed it with my branch Manager and even the VP of Member Service and I was informed that a few members asking for a product that we do not offer does not create an extreme demand. I still believe, however, necessity is the mother of invention. As a student I have experienced a gap between my federal loan and tuition. Many of the online student loan options come with high rates, difficult repayment options, and serve as an immediate option with some expensive long-term results.
A CUSO called Student Choice was developed by a handful of credit unions for the purpose of providing additional student loans for students who need help filling that gap. The loans do not have fees and have various repayment options. This is a plus because by the time you take a rate of about 8% and 7% (and in some cases I have seen more), origination fees, and the fact that most students defer payments and interest, you do not come out with a quality loan.
One response I received from my Branch Manager at that time was that the market for this type of product might be slim, and a product like this is a loss. According to the press release (PDF) sent to the Credit Union Times, Student Choice CUSO approved $1.5 million in loans in a thirty day time period. This is with only participation from about 7-9 CU’s. That means many students nationwide now have an additional window opened to them.
I believe in the value of student loans. This is another avenue for Credit Unions to be relevant to young adults. So many young people go to college, and how great it would be for credit unions to tap into that segment of this market, and possibly develop some relationships that last through the lifetime of the person. To me, the benefits, even the value behind this absolutely outweighs the costs.
Consider this excellent article at CreditUnions.com (full disclosure: Callahan and Associates publishes CreditUnions.com and also manages the Student Choice CUSO) that talks about how this type of loan could redefine the thought process behind college costs in a way they have never done, or had the opportunity to do in the past.
Any thoughts?
Comments
12
I am proud to say that Wright-Patt Credit Union is one of the first handful of credit unions to offer this product. I could not be happier to see credit unions take a big step in combatting preditory lending practices and high interest/ high origination fee GAP loans. As a recent graduate myself, I look back and wish a product like this was available when I was in school. I am also pleased to say that we have had great success and great response from our members about this program.
Every year, we help staff new student orientation at a large university near our corporate office, and this year has been phenominal. Students and parents are raving about the quality of this new loan, and the benefit to the students. We love it and are committed to making this a successful program that HELPS students when they need it. Just another reason I am proud to work at my credit union!
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Alex, I love this! Thanks for posting the information. This has been a hot topic in our area for us because PHEAA (Pennsylvania Higher Education Assistance Agency) has decided to temporarily suspend acting as a lender in the Federal Family Educational Loan program (FFEP). Basically PHEAA can’t raise the cash necessary to fund student loans.
Credit Unions are definitely looking for ways to step in and help with this issue. Dustin, that’s great that you guys were one of the first to embrace this. I would really like to hear about any feedback you have received from the students/parents/college – good and bad.
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This is a great post! And just think – you get a student loan into a young person’s hands and you can easily market other products that are necessary for a college student – debit cards, credit cards and maybe an auto loan. There are possibilities for creating student packages: “get a loan from us and open a checking account with debit card, and we’ll refund your foreign ATM fees for your first semester” – very marketable.
We’ve talked about how many young people don’t even know what a CU is. Since student loan debt is such a widespread phenomenon (as a grad student as well, this hits home with me), CUs can help the many suffering students out there and open doors to other products… win/win!
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Great post, Alex! I think this is such an exciting program. A friend of mine has recently gone to work with Student Choice. I hope you don’t mind that I passed the link along to him, too. As a marketing guy, I’m sure he’ll love to see this blog!
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I completely agree! Great post!! I too, coming from member service background, have too often had those conversations with members trying to explain why that particular credit union I was working for didn’t offer student loans. The conversation would then generally gravitate towards “well then I’ll just go to BofA and open my checking account there because they offer both”. In my opinion, credit unions have severely needed to address this inability for years and I’m very excited to see someone finally getting to the forefront of the issue!
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A great post, with perfect timing. As Toni stated PHEAA is going through some major changes and a lot of Pennsylvania credit unions are seriously considering new options for student lending. Does anyone else have personal feedback from their experiences with Student Choice?
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Hello everyone,
Great discussion here! I am a friend of Jill’s and as she mentioned above, I recently began working for Credit Union Student Choice (after working as the VP of Marketing for a community credit union for the last 9 years). I know this is going to come off as a huge commercial, but considering how new private student lending is to the credit union world I’d like to “briefly” explain our company.
As noted, the educational financing marketplace finds itself in an extremely dismal state. Due in large part to market turmoil and restricted access to capital, many traditional lenders have left the building, leaving students and families scrambling for high-quality educational financing like never before.
While unfortunate, this situation has also created a vast window of opportunity for credit unions to step up and serve the private student lending market. Growing more than 350% in the last seven years alone, (reaching $23 billion in 2007) this market gives credit unions—as not-for-profit balance-sheet lenders—an opportunity to bring true value to consumers while accomplishing critical organizational goals, including, serving members and broader fields of membership at a time of critical need, building productive, long-term relationships with Gen Y, and growing and diversifying loan portfolios.
The CUSO was founded in 2008 by several of the nations leading credit unions and CUSOs. It features a uniquely cooperative business model, providing credit unions with a turn-key solution by managing the challenges and risks commonly associated with private student lending. The Student Choice network enables credit unions to make private student loans and hold them on their own balance sheet, thereby recognizing the full value stream that can come from a long-term productive loan relationship. This is not a referral program—it is a credit union loan with a credit union member at the most critical stage of their young financial lives. Think of it this way – most credit unions sell mortgage loans and retain the servicing. For this product, the credit union is booking the loan and letting the CUSO handle the application and servicing process.
Credit unions currently launched and active include Wright-Patt, Digital, Star One, Affinity Plus, San Antonio CU, NASA, Northwest, Eli Lilly, and Members 1st. We’ve got several more ready to launch in the next few weeks. Since starting on May 5 we’ve now approved nearly $7 million in loans.
We are still working on our own CUSO website so if you want to check out what the member sees, visit http://wpcu.studentchoice.org/ to see Wright-Patt’s co-branded Student Choice website.
Please drop me an email if you’d like to discuss further offline. Thanks!
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I had the opportunity to hear a presentation on CU Student Choice while at a conference in San Diego. It sounded like a great way to attract those younger members that credit unions are aggresively seeking.
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Not to sound over-the-rainbow but how awesome are cu’s! We move so fast on stuff it’s just amazing. Just click your heels and you’ve got what you need thanks to the cooperative spirit!
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Mike, I second your comments. With the economy in the midst of a credit crunch resulting in large student loan financers backing out, there is huge opportunity for credit unions to fill the market void with student loan products and services that are more consumer focused than traditional Stafford and/or private student loan products. Although historically these loans are viewed by credit unions as low yielding, they really are a long term sticky product, especially when you take into account the increased cost of education and the emergence and popularity of private, online and continuing education providers that charge a greater cost per credit hour than state run institutions.
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There are many type of loans available in the market. Its very important to examine all your options first before settling with your final choice. Thanks for the info!
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