Student Lending – How to Reach this Market

Learn about the two models that credit unions like Navy and Eastman are using to reach this special market.


As most people have found, there is never one clear-cut way to connect with college students. The same can be said for credit unions employing student lending programs.

There are two basic models for credit union student lending programs: direct–to-school and direct-to-member. From the credit union perspective, the choice of model is usually driven by field of membership, ties to local institutions of higher learning and local market dynamics.

Direct to School
In the direct-to-school model, the credit union partners with one or more schools that act as a facilitator between the student and the credit union. The connection between the student and the credit union is achieved through preferred lender status designated by the university. When the student receives their financial aid package from the school, they typically also receive a list of university recommended or “preferred” lenders. These lenders generally account for the majority of student loans processed for that school.

Credit unions must appeal to two constituencies in a direct-to-school model: the university financial aid office and the students. The credit union must build a relationship with the school to become a preferred lender and must also create an attractive package to set themselves apart from other preferred lenders.

As described in the previous article (hyperlink), there are two types of loans: federal and alternative. The direct-to-school model begins with federal loans. Rates on these loans are set by the Federal Government and are thus the same across all lenders. Therefore, components of an attractive and differentiated package include low origination fees and other borrower benefits on federal loans, offering alternative loans so students and their parents can do all of their borrowing from a single lender, and strong customer service.

The benefit of the direct-to-school model is efficiency, but it can be challenging to break onto a school’s preferred lender list. For credit unions that don’t have strong relationships with local schools, a direct-to-member approach may be a more realistic option.

The direct-to-member model is just that--the member receives the loan straight from the credit union without the school as an intermediary. Unlike the direct-to-school model where the preferred list helps facilitate a connection between the student and the credit union, the direct-to-member model relies on strong member relationships and marketing campaigns.

In a direct-to-member model, credit unions can focus strictly on federal loans, alternative loans or offer both. For example, Navy Federal Credit Union ($24B) concentrates on offering federal loans direct to members, while Eastman Credit Union ($1.6B) deals primarily with alternative loans and both are experiencing success with their respective methods.

Feeling Overwhelmed? There is Help!
A challenge for credit unions with both models is how to develop the knowledge and resources to effectively reach members and process the loans. One way some credit unions are facing this challenge is by turning to student lending CUSOs and networks. These organizations can help with loan originations, customer service support, marketing support, staff training, and a guaranteed sales premium.

To learn how leading credit unions are employing these different models to reach this market, check out our webinar, Student Lending: How to Enter This Overlooked Market, brought to you by the Callahan Center for Credit Union Leadership.