Holt Emphasizes Need for Private Student Lending
This content originally appeared on CU Today.
During the CUNA Lending Council annual meeting, student loans - and especially refi’s - were at the front of the class as a loan opportunity for credit unions, offering low defaults, large balances and attractive margins. Credit Union Student Choice SVP and Chief Revenue Officer Jim Holt was one of the experts on hand to discuss the opportunities for credit unions.
Holt pointed to the number that has become all too noticeable, the huge growth in student loan debt. In Q2 2005 there was $370-billion in such debt; in Q2 of this year the tab was $1.19 trillion.
While multiple factors have driven that debt figure, Holt reminded, “Still, getting an education is one of the most empowering things you can do. The benefits are sustaining and predictable. It offers a 15% return (via improved income). Since the 1990s BA recipients have seen 50% higher earnings than those with a high school diploma.”
But that empowerment, coupled with costs north of $50,000 annually at some private schools, has more people “having kitchen table talks and really starting to think through these decisions. A lot of families are thirsty for information on how can they best afford college.”
Holt said the average student debt per borrower is $31,252; 40% owe less than $10,000. What may surprise some, he said, is that default rates are actually higher among borrowers with less than $5,000 outstanding than those with $100,000 or more. A chief reason is the ability to leverage the education, said Holt. “Those under $5000 often didn’t graduate and couldn’t effectively leverage their degree,” he said. Many of those with debt of $100,000-plus are doctors or dentists.
“There is a need for modern, Millennial-focused financial literacy,” according to Holt. “I find it funny everybody knows how to buy a car; it’s like a blueprint passed down from your grandfather. But when it comes down to financial aid, that’s not the case. It’s a mystery, but it shouldn’t be.”
Holt said CU Student Choice has put a lot of emphasis on video content and to speaking to members individually. It adds content daily.
The education piece also applies to credit unions, he said, especially those not in the market because they misunderstand the risk.
“We’ve all heard that student loans are a heavy weight on members and affecting their ability to take out mortgages or auto loans,” said Holt. “Overall performance of student loans is high. This is a very high earning asset with low delinquencies.”
Using data drawn from nine credit unions with 8,000 student loan borrowers, Holt said the CUs averaged 58% average checking penetration; 18% average card penetration; 9% average auto loan penetration, and 6% average deposit penetration. “This is a real opportunity to leverage this relationship. This is a great way to invite these new young, promising faces to create loyalty with you.”
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