According to the U.S. Census, over four million babies were born in 2005. On average, 28 percent of these children will eventually attend college. Assuming an inflation-adjusted tuition cost, the “Class of 2005” alone will spend over $257 billion on higher education.
Individual credit unions are engaged to varying degrees in education savings and lending programs. The University of Southern California Credit Union ($227 million, Pasedena, CA), for example, has had tremendous success with their student lending business, experiencing 17% total loan growth over the past five years. Non-university affiliated credit unions are also pursuing educational savings programs. California Coast Credit Union ($896 million, San Diego, CA), for example, is conducting focus groups to determine the needs of college students to improve their service offerings.
As an industry, however, credit unions have not made their presence felt in the educational planning arena like they have in the auto lending business where credit unions control nearly 19% of all U.S. auto loans. Are credit unions missing a big opportunity?
Educational Planning Plays to Credit Union Strengths
According to a Federal Reserve Board survey, 11 percent of households say education is their most important reason for savings. Credit unions are uniquely positioned to help member households achieve their savings goals.
For starters, credit unions can offer members superior savings and lending rates given their relatively lower cost of funds compared to banking institutions. The compounding effect associated with an above average savings rate over 18 years could provide significant additional money for member’s future education needs.
The demographics of the credit union membership base also support a push into educational savings programs. According to previous CUNA National Member surveys, over 70 percent of credit union members are married and the average member household size is 2.8. This suggests that the average credit union member is married, has one child, and may be considering educational savings plans.
Finally, helping members plan and save for higher education is in line with the credit union’s “member’s first” philosophy. Credit unions, therefore, have a unique set of skills and attributes that are well-aligned with the educational planning opportunity.
A Win-Win Arrangement
Not only will members benefit from credit union-sponsored educational planning programs; credit unions themselves will benefit significantly as well. Educational planning programs reinforce a credit union’s value to its members, strengthen the long term relationship, and help to position the credit union as a primary financial institution.
Educational planning programs can also help to stimulate the industry’s flagging growth. Given that the industry has seen a marked slowdown in asset growth (5.4%) and share growth (4.2%), credit unions would benefit from a growth engine.
Finally, educational planning programs provide credit unions with an opportunity to reach new members in general and younger members in particular. Given that the average age of a credit union member is in the mid-forties, educational planning programs serve to target the next generation of credit union members.
How is your credit union targeting this market? Please comment below if you have any interesting approaches or comments you wish the broader credit union community.