Rising education costs seem to be a constant focus in the news recently, and with good reason. A historical analysis of tuition costs reveals that over the past ten years (1994-2004), average post-secondary tuition costs increased 63 percent!
The Need for a Student Loan Alternative
While this growth in tuition costs is alarming, the real issue lies in the fact that federal financial aid programs have not kept pace with tuition increases. Over the same 10-year time period, average federal loans increased just 53 percent. Federal grants to students who qualify only grew 51 percent. Since tuition costs have risen much more quickly that federal loan and grant programs, students have been increasingly turned to private loan sources to fill the loan gap.
Private Loans as the Answer
Private student loan programs barely existed ten years ago. Today, private student loans represent the fasting growing sector. According to the College Board, there were only $1.1 billion private student loans in 1994; as of 2005, there was over $13 billion borrowed from private lenders - over 1000 percent growth!
Why Private Loans are Attractive for Credit Unions
The growth in private student loan programs represents a tremendous opportunity for credit unions to increase their balance sheets. In addition to the financial benefits, however, student lending represents a big opportunity for credit unions to develop relationships with young members, a demographic group with significant potential for credit unions.
Given the aging membership base of most unions, student loans open the door to building lasting relationships with younger members. To cross-sell their services, many private student loan programs require the borrower to maintain a checking or savings account in order to receive their funding via direct deposit. Creating this connection can be critical given that a recent study found that seven in ten college graduates are reported to maintain their accounts with the banking provider they used in college.
Private student loans are appealing because the program is easy to set up and maintain. Many credit unions offer private student loans as a simple line-of-credit similar to their other lending products.
To learn more about private student loans and how they can benefit your credit union, please join us for our webinar, Private Student Loans: Growing Balances and Attracting Gen Y