Get Schooled In Student Lending

Student loans are filling a community need while boosting credit unions' bottom lines.


Credit unions are taking a stronger foothold in student lending and showing they want to fill a community need. As 3Q 2011 data rolls in, the 6,215 credit unions in Callahan & Associates' FirstLook data are reporting slightly more than $1.25 billion in outstanding student loans. The reporting credit unions held 94.3% of student loans in June, which means total balances in September should exceed $1.3 billion. Since credit unions first started reporting this account code in the first quarter of 2011, balances have increased $298 million, an annual growth rate of 58.0%. Such growth highlights the opportunity in student lending, although it should be noted that high growth rates in new account codes are common until credit unions adjust to new reporting requirements.

The growth in student lending is aided in part by credit unions wanting to meet their members’ demand for student loans as well as financial aid offices, such as Elhurst College in Illinois, encouraging students to turn to a local credit union or community bank for personalized service. Smaller institutions typically work with students to help them qualify for a loan whereas larger institutions are more likely to look at “black and white” information such as a student's credit history, says Ruth Pusich, the director of financial aid for Elhurst College.

“Our first recommendation for any student taking out a loan is, if they belong to a small bank or credit union, to go there first,” Pusich says, referring to students seeking private loans. “We are definitely seeing a big increase in alternative loans coming in from various credit unions and smaller banks.”

Credit unions can focus on serving the best interest of their student members, offering them loans for better rates, no origination fees, and flexible repayment terms. And credit unions and smaller community banks are proving they can offer more one-on-one, tailored service to members beyond a basic application process, Pusich says.

Private student loan volume is growing more rapidly than federal student loan volume — 25% per year versus 8% per year, according to If that trend continues, annual private education loan volume would surpass federal student loan volume by 2025, the financial aid resource predicts.

Beyond just outstanding balances, the other key measure of credit union involvement in this space is the number of loans outstanding. By this measure, credit unions have helped more than 250,00 students finance their higher education. There are still ample gaps in student lending needs and, as third quarter preliminary data is showing, more credit unions are proving they can fill them.