Credit Union System Lags in Fast-Growing Loan Segment

Many credit unions say the doors to higher education are closed. Credit unions with the determination to pry them open find both financial and strategic benefits.


The guaranteed student loan market grew 16 percent to $45 billion in 2004, but only a handful of credit unions participated in this growth.

According to figures released by the U.S. Department of Education, three credit unions were among the top 100 originators of Federal Family Education Loan Program (FFELP) loans in 2004:

Credit Union and City

2004 Student Loan Origination

Rank in Top 100

2004 Origination/ Total Loans

USC CU, Los Angeles

$83.9 million



University FCU, Austin

$63.8 million



Security Service FCU, San Antonio

$47.7 million




SLM Corporation, otherwise known as Sallie Mae, muscled into the top FFELP origination slot in 2004, issuing $4.2 billion in new loans—a gain of more than a billion from the previous year. Sallie Mae gained more market share than any other originator, expanding its slice of the pie from 8.6 percent to 9.5 percent in one year. It did so by capturing nearly 15 percentof all guaranteed loans issued in 2004.

While precise data is not available from 5300 call reports, government figures suggest that credit unions’ share of the guaranteed student loan market is less than one percent of total origination. Many credit unions cite cut-throat competition from banks and Sallie Mae as well as arcane and bureaucratic school lending practices for the system’s struggle for student loan volume.

Benefits of Student Lending

Credit unions that have been successful as student lenders, including those in the table above, like both the financial and strategic benefits of these loans. High quality, loss protection and adjustable coupons compensate issuers for the relatively modest yields. And since a student loan is often a young person’s first major financial decision, some CEOs see student loans as a way to develop the next generation of credit union membership.

Interestingly, a credit union’s field of membership doesn’t necessarily determine its ability to succeed in student lending. While USC CU and University FCU have strong links to higher education, other originators like Navy FCU, which issued $41 million in 2004, have developed effective tactics for attracting student borrowers and working with fickle student loan administrators.

Given credit unions’ traditional “people helping people” mission and not-for-profit orientation, it’s disappointing that the system hasn’t achieved a higher profile in the student lending segment. While the characteristics of the student lending business can make it challenging for any one credit union to go it alone, cooperative efforts to increase student lending system-wide just might unlock the doors to higher education.

A t Callahan & Associates, Inc., we think student lending is an area that deserves more attention within the credit union community. We would love to hear about the successes and challenges your credit union has had with this lending avenue. E-mail Melanie Sabaawi to share your credit union’s successful strategies or if you’re interested in learning how other credit unions addressed obstacles you may be facing.




May 2, 2005



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