Small-Dollar Loans Boast Big Career Potential

A Louisiana credit union brings technical education within reach by removing two major barriers to attaining it.

 
 

Top-Level Takeaways

  • Southwest Louisiana Credit Union serves a market where technical and operational jobs are among of the highest-paying occupations.
  • To tear down financial barriers to attaining technical degrees and certifications, SLCU offers a tuition loan program.

Lake Charles, LA, is home to several petrochemical plants and oil refineries. In addition to gaming, the southwestern Louisiana city’s economy is primarily driven by industry and manufacturing — which offers local residents some of the area’s best-paying jobs, some starting at six figures.

Chad Miller, CEO, Southwest Louisiana Credit Union

The barrier for entry into these fields, however, can be high. Operator and technician jobs often require trade school degrees, says Chad Miller, CEO of Southwest Louisiana Credit Union ($131.5M, Lake Charles, LA), which can require anywhere from eight weeks of intensive study to two years of traditional study.

Many would-be job seekers have families or existing student debt, making it difficult to walk away from a current job and assume additional education costs.

“I don’t know a lot of people who can afford to stop working for eight weeks,” Miller says. “There are a number of good-paying jobs out there, but folks are not going to school or are patching together lost income by taking on credit card debt.”

There are a number of good-paying jobs out there, but folks are not going to school or are patching together lost income by taking on credit card debt.

Chad Miller, CEO, Southwest Louisiana Credit Union

SLCU became a CDFI-certified credit union in 2018. In its first grant application to the CDFI Fund, the credit union wrote about its idea to offer an education loan to serve members like this. When it received grant funding, the credit union fine-tuned the product’s design and introduced its tuition Loan Plan in July 2019.

Tuition Assistance And Other Barriers

Through the Tuition Loan Plan, SLCU offers up to $5,000 in loans, at a flat 12% interest rate, to cover the cost of education. According to Miller, that $5,000 typically is enough to cover either a semester or two of full-time classwork at a community college that offers a trade degree or the full cost of the eight-week accelerated programs offered locally.

Members provide proof of enrollment, an estimate of the number of hours needed to complete the education or certification program, the estimated date of graduation, and the funds needed to complete the degree or certification. The borrower’s debt ratio cannot exceed 45%; everything else is fungible.

“We are lenient in our underwriting,” Miller says. “We are willing to take the extra risk on someone who has no or limited credit because of the low dollar amount and the grant funding behind it.”

The credit union pays the school or program administer directly. For members, SLCO caps the repayment schedule at 60 months and defers repayment until 30 days after the date of graduation or certificate completion. However, it also allows borrowers to defer payments up to 12 months from the date of origination. Additionally, the credit union caps payments at 10% of a borrower’s gross income at origination.

Click here to view the one-sheet for SLCU’s Tuition Loan Plan.

In 2020, SLCU won $30,000 in grants from the CDFI Fund to create a voucher program to supplement the two main barriers to technical degrees and certifications: childcare and housing.

Those with a tuition loan can apply to receive monthly stipends to cover daycare and rent or mortgage costs. Depending on income, SLCU will cover as much as 100% and as little as 70% of those costs for a maximum of three months. SLCU modeled its voucher’s income requirement on a local down payment assistance program run by the Calcasieu Parish police jury — the legislative and executive government of the parish — that Miller says has been successful and is likely familiar to local residents.

The credit union offers 100% assistance for those with gross incomes of $35,000 or less; 80% for gross incomes between $35,001-$45,000; 75% for gross incomes between $45,001-$55,000; and 70% for gross incomes above $55,001.

“Members couldn’t afford to send their child to daycare or they couldn’t afford their monthly rent,” Miller says. “This is a small way we can remove that barrier.”

CU QUICK FACTS

Southwest Louisiana Credit Union
Data as of 09.30.20

HQ: Lake Charles, LA
ASSETS: $131.5M
MEMBERS: 16,757
BRANCHES: 2
12-MO SHARE GROWTH: 29.9%
12-MO LOAN GROWTH: 5.2%
ROA: 0.52%

Thus far, the $131.5 million credit union has dispersed 15 tuition loans at a total cost of $50,000. The loan program predates the voucher program by approximately one year, Miller says, which means the credit union is still finding its footing. Thus far, the credit union has provided $3,000 in assistance from its $30,000 pool. It’s also finding members prefer to use the program for rent.

“Not everyone needs help with childcare because they don’t have kids or they have family help,” Miller says. “But rent is a big one.”

Response has been overwhelmingly positive. Without this loan, Miller says, these borrowers wouldn’t be able to get the degree or certification they need to enrich their careers, and they recognize that. In the immediate future, Miller would like to see the credit union push the product deeper into different SEG groups to drum up more interest.

It’s got an ambitious vision for the program, but SLCU has taken a calculated approach to growing those loans and taking on the additional inherent risk. Looking ahead, SLCU would like to add a financial education element to the loan. All of its employees are certified financial counselors, and Miller says financial education is one way the credit union can lower risk and expand the amount of credit it is willing to extend. Plus, the Tuition Loan Plan is an education-focused product, so offering financial education is a natural fit.

“Ultimately, adding financial education to a product that already encourages furthering education will make our members’ lives better,” Miller says. “And that’s what we’re all about.”

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