Whether you’re a high school senior seeking an undergraduate education, an overseas student looking to study at a top business school in the U.S., or a parent struggling to put a grade-school child through the private school system, Eli Lilly Federal Credit Union ($968M, Indianapolis, IN) is serving multiple needs in the education sphere.
The credit union has been a significant student lender for a number of decades. From involvement with the Federal Student Loan Program, ceased in the mid-90’s due to regulatory issues with servicing loans, to a 2008 shift to private student lending via a CUSO partnership, the credit union has approached student lending in a number of different ways.
“Our membership is primarily Eli Lilly family members and employees, so it’s a highly educated group,” says Rick Thornburg, senior vice president of lending. “Offering student loans is important to fully support our members.”
As of March 2012, the credit union has approximately $23 million in its private student loan portfolio.
“These options are a line of credit, so incoming freshman get set up and then don’t need to worry about it anymore as long as their credit doesn’t change dramatically,” Thornburg says. “They don’t need to worry about going to school for a year and then having their lender go away.”
While Eli Lilly FCU mainly focuses on an undergraduate base, its loan offerings have continued to adapt to changing student needs and evolving economic circumstances.
Solutions even extend to the parents of grade school children dealing with elite private school costs, which range from a few thousand dollars per year to the price of a new car. To address this need, the credit union offers a unique 12-month balloon note, timed to coincide with school payment schedules and a March bonus that members typically use to pay the balance off.
“It’s not an extremely large program, but right now it’s at about $3 million, and the credit union does about 50-70 of these loans per year,” Thornburg says.
Last year, the credit union began another unique outreach, offering loans to overseas MBA students without cosigners or credit scores to finance their study at either UCLA or the University of California, Berkley.
“From an undergraduate standpoint, this program is growing a lot faster than we would have ever thought,” says Thornburg. “And other top educational institutions out there have been reaching out to the CUSO because of these borrower’s needs.”
Currently, 150 of these foreign student loans have been issued for around $6 million. They are structured at prime rate plus 4.5%, which can be lowered by 25 basis points if the individual obtains a co-signer.
“Because of the economy over the last few years, a lot of banks got out of foreign student lending and it really decreased these student’s options,” Thornburg says. “However, we’re doing business with very high-quality schools and high-quality students.”
Understand Student Borrowers
Roughly 70% of foreign undergraduate students rely on family and their own funds to finance an education, according to the Institute of International Education. Over 723,000 international students currently study in the U.S., contributing more than $21 billion to the economy each year.
Among these top tier business schools, the completion and employment rate is nearly 100%. All customer identification program (CIP) related information that the credit union requires is also verified through the schools.
“We definitely know who we’re dealing with before we make the loan and at this point, we’ve had no issue with delinquency or default at all,” Thornburg says. “A lot of these individuals have been here for a few years, are already employed, and are studying as they work.”
Alumni associations are also the way many students network, so borrowers tend to stay in close contact with the school (and thus the credit union) throughout their education and repayment period. A risk sharing agreement with the schools provides further security, allowing the credit union to safely meet an underserved need, put loans on the books, and support its investment in the CUSO.
“These loans are a win for us, the schools, and the students,” Thornburg says.
Even when dealing with U.S. citizens, student lending can be a complex process that requires equal parts outreach and education. But Eli Lilly has developed the strategy and resources to support its student borrowers from beginning to end.
Cater To Their Parents, Too
Credit unions should focus on educating both students and parents. Levels of personal responsibility at that age group vary, so cover every base possible. After four years, one group may be more likely to retain the information about the loan than the other, and most often, it’s the parents.
“We’re one of the few institutions that have a devoted staff for student lending,” Thornburg says. “With three full-time employees, we expect to have one-on-one conversations with local students and parents before and during the application process.”
From large group seminars that happen multiple times a year, to small-scale individual sessions, the credit union preemptively addresses any misunderstandings about higher education and the use of these funds to give members the best borrowing experience possible.
“Sometimes it’s as simple as an in-branch class showing parents how to fill out a FAFSA form, but we also do financial aid night and back to school nights at the local high school, or go out to meet families in a coffee shop,” Thornburg says.
“After all these years, it’s not so much about driving loan volume as developing engaged members, so we really want to avoid them having any surprises when they get out of school.”