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Student lending can be a good niche for CUs
WASHINGTON (1/15/13)--Loan-starved credit unions seeking to expand their portfolios take note: The latest student lending trend could lead to a new lending market among existing prime members, says the Credit Union National Association.

During third quarter 2012, non-federal guaranteed student loans at credit unions increased 20% year over year to $1.93 billion, according to CUNA.  Although they represent a small percentage (0.3%) of credit unions' loan portfolios, the average age of the co-signers on these loans is 47-49 years--in line with existing members' average age.

"It is growing tremendously for credit unions--to about  $2 billion. CUs are having a hard time finding loan growth. This could be a nice niche for us," said Paul Gentile, CUNA executive vice president of strategic communications and engagement, in a call with trade press Monday.

"If you watch the news, there are so many negative stories about student loans, yet student loan delinquency in credit unions is 1.45%--so credit unions are doing something right," Gentile said.

Credit unions are also benefiting from new regulations, particularly the Higher Education Opportunity Act, said Vince Passione, CEO of Fynanz, a private student loan company and CUNA Strategic Services provider.

Around 2008, during the post-credit crisis when other lenders left private student lending, "credit unions stepped in," said Passione. "They architected all their student loans programs following the regulation."

The act requires lenders to disclose to students and parents that the loans are non federal guaranteed private loans, and ensure they understand the cost of borrowing. It also requires lenders to educate. Schools are certified, and the students don't overborrow. "Students are required to exhaust all other avenues first before taking a private student loan," Passione said.

Fynanz's  program requires students to make payments while still in school,  "so they begin good repayment habits early," said Passione.

Student loan delinquencies at credit unions--1.45%  for a 60-day loan-- are lower than banks' loans but higher than the 1.13% delinquency rate of  all credit unions loans. That compares with 5.3% of delinquent loans in the general student loan market and 12% when federal loans are factored in, said CUNA.

Will student loans present a concentrated risk if the economy dips again? CUNA Chief Economist Bill Hampel said no. "Even if the current loan rate continues for a decade, there would still not be enough concentration in this market," he said. "For some individual credit unions, if they got into [student loans] big, they might see a little more [risk]."

Today, 581 credit unions offer private student loans, compared with 488 a year ago, said Passsione. Roughly  2,000 schools and universities offer Fynanz's student loans, said Passione. For more information, use the link.

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